Commodity Markets: The Ping-Pong Around U.S. Tariffs Continues, Focus on Inflation Data in the U.S.

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‘The ping-pong’ around U.S. tariffs continues, adding uncertainty to financial and commodity markets ahead of a rather important week. The topic of tariffs will remain relevant for months, which will affect the flow of money in and out of various markets, with commodities at the center of it all. In the context of tariffs, it is interesting to see the U.S. trade deficit with China at -295 billion dollars, the EU at -236 billion dollars, Mexico at -172 billion dollars, and Vietnam at -124 billion dollars. Therefore, it is very easy to predict which vegetables will be in focus for Trump and the topic of tariffs in the coming weeks.

On Tuesday, we expect a new USDA report on global supply and demand for grains, with important estimates on South American production and export projections for the U.S. Then, on Wednesday, we will see the first important macro announcement for February – the CPI inflation data for January in the U.S. The market expects it to be 2.9 percent, the same as last month. Of course, inflation of three percent or more would again put pressure on the FED and the topic of interest rate hikes, which would consequently lead to further strengthening of the U.S. dollar and a significant effect on risk assets and commodities. In addition to the above, traders’ focus will be directed towards weather conditions in the Black Sea, the redirection of soybean demand in China towards origins from Brazil/Argentina, seasonal increases in the energy market, and the stretched positioning of speculators in markets like corn and cotton.

It is becoming increasingly clear that Trump will announce a peace plan to end the Ukraine-Russia war. He seems to want to provide security guarantees to Ukraine that Russia will not attack again in exchange for key mineral rights for the U.S. He emphasized the strategic importance of these minerals for the U.S. supply chain, highlighting that Ukraine possesses significant reserves of critical materials essential for various industries.

China, the world’s largest consumer and producer of gold, continues to accumulate gold. It will now allow hedge funds to purchase gold. In the last 12 months, gold has increased by 41 percent in dollars, and silver by 48 percent. At the beginning of this week, gold continues to rise, as do silver and bitcoin. Concurrently, the dollar has pushed the euro into the “death zone” for the third time. Below the parity of 1.0335, demand for the euro disappears, all the way down to 0.95.

Another American Oil Boom Is Not on the Way

Brent crude oil futures prices are around 75 dollars per barrel at the start of the new week, after slightly falling last week. The U.S. Treasury Department last week announced sanctions targeting individuals and tankers involved in transporting millions of barrels of Iranian crude oil annually to China, aiming to increase pressure on Tehran. However, oil gains have been limited by ongoing concerns about the potential consequences of President Donald Trump’s current tariffs. Over the weekend, Trump announced new global tariffs on steel and aluminum, which could affect the U.S. energy sector, including oil drillers that rely on special steel not produced domestically. Meanwhile, Chinese tariffs on U.S. goods come into effect today as retaliation for Trump’s recent impositions, although their impact is expected to be limited due to modest Chinese energy imports from the U.S.

Concurrently, OPEC stated that it will maintain its previous production plans and will not yield to Trump’s demands, requesting member countries to reduce daily crude oil production to 5.85 million barrels or the equivalent of about six percent of global reserves. However, they stated that they will gradually increase production from April onwards. The conflict between Trump and Saudi Arabia over oil prices could shatter the myth of American energy independence. Trump wants to lower oil prices possibly even to 45 dollars per barrel, but Riyadh, as well as the American oil industry, disagree with this. The American shale oil boom is no longer growing. Over-drilling, bankruptcies, and an unrelenting focus on satisfying Wall Street investors have made American producers reluctant to flood the market. No matter how many regulations Trump has rolled back, another American oil boom is not on the way. The same shale drillers, which like to be highlighted as a symbol of U.S. supremacy, would be wiped out if oil fell to 45 dollars per barrel. Neither can Saudi Arabia tolerate those prices. Riyadh needs oil above 80 dollars per barrel to support its inflated budget and finance its “Vision 2030” projects. The essence of it all is that today Trump can no longer pressure OPEC as he did before. The days of American hegemony over global energy are quickly fading. With the strengthening of energy cooperation among BRICS countries, the dedollarization of the oil market, and investments in alternative oil pipelines, the grip of petrodollars is loosening.

Gas Consumption Is Already Burdening Supplies

However, it seems that there is now a much greater market focus on gas. European natural gas futures prices (TTF) have risen to around 58 euros per megawatt hour at the start of the new week, the highest level since January 2023, as colder weather accelerates the reduction of regional gas storage. With low temperatures expected in Northwestern Europe, heating demand should rise, fueling the growth that has dominated the market this year. Gas consumption is already burdening supplies, which are at their lowest level for this time of year since the energy crisis of 2022 – only 49 percent full compared to 67 percent a year ago. This raises concerns about summer replenishment. Weak wind strength has further increased dependence on gas. Meanwhile, traders are watching for potential disruptions due to American tariffs. Donald Trump plans a 25 percent tariff on all steel and aluminum imports and could target the EU, causing fears of retaliation. A trade dispute could lead to increased costs for liquefied natural gas (LNG), especially as the U.S. remains the largest supplier to Europe. Have you ever wondered which countries have the largest natural gas reserves? The largest is Russia, with 24.3 percent of total world reserves. In second place is Iran, followed by Qatar, the U.S., Saudi Arabia, Turkmenistan, the UAE, Venezuela, and finally Nigeria. The top nine countries hold 75.9 percent of total world gas reserves. Except for the U.S., all are interesting countries, which we can hardly say the world can rely on.

Wheat markets are showing strong momentum at the beginning of 2025. At last week’s level, the price increased by 4.2 percent. The upward trend in wheat prices, combined with a similar rise in coffee, corn, soybean, and pork markets this month, indicates inflationary pressures on consumer food as we move through 2025. Fund positions are such that the market is long on corn, soybean, and soybean oil, and short on wheat. This should always be kept in mind.

The weather forecast indicates that drought continues in Southern Brazil and Argentina, but slightly more optimistically than before. A cold wave is expected in the U.S. and Russia. In Brazil, soybean harvesting has begun, which is delayed compared to last year. Nevertheless, they expect a record yield of over 170 million tons. Looking at the EU, corn and soybean imports are slightly above last year’s levels, while the import of meal is nearly 30 percent higher. At the same time, wheat and barley exports are significantly lower than last year, which only shows the global non-competitiveness of European wheat at this moment. For grains in the EU, the “market mover” will be the euro/dollar relationship.

Aluminum Production in China at Record Levels

Copper has reached its highest price level in the last four months due to bullish fundamentals. Concerns are rising over supply reductions from Chile, the world’s largest copper producer, as repairs and aging mines cause delays. Additionally, Chinese demand has returned to the market after the Lunar New Year celebrations, and demand in the U.S. seems stronger as buyers stock up ahead of potential tariffs. However, investors have remained cautious following Trump’s announcements and plans regarding tariffs. It will certainly be necessary to wait and see in which direction all of this will move. The same goes for aluminum prices, which are currently around 2,640 dollars per ton. The U.S. relies on imports for nearly half of its aluminum consumption, with Canada as the largest supplier, followed by the UAE. Meanwhile, aluminum prices have already been on an upward trend, following broad gains in base metals as supply concerns and improved production indicators supported demand expectations. In China, aluminum production reached a record 44 million tons in 2024.

How many new mines/factories and minerals does the world need for the energy transition? To cover global battery demand, 293 new mines need to be opened by 2030 to extract key metals and minerals. Today, global copper supply stands at 22.9 million tons annually, and an additional supply of 3.7 million tons will need to be secured. The supply of refined phosphoric acid is 6.5 million tons, and an additional 2.5 million tons will need to be secured; nickel supply is 3.6 million tons, and an additional 1.4 million tons will need to be secured; natural graphite supply is 1.2 million tons, and an additional 1.7 million tons will need to be secured. If you thought that was all, there is more. Lithium supply is 1.2 million tons, and an additional 1.5 million tons will be needed; synthetic graphite is 1.8 million tons, and an additional 356 thousand tons will be needed; manganese supply is 90 thousand tons, and an additional 319 thousand tons will be needed; cobalt supply is 272 thousand tons, and an additional 129 thousand tons will be needed; and finally, rare earth metals (trace elements) have a supply of 84 thousand tons, and an additional 33 thousand tons will be needed. Is it realistic to achieve? No. And what will happen to the price in the long term? You decide.