Commodity markets were not insulated from the sell-off in equities, and the specter of tariffs is dampening market sentiment.
Energy – Impacted by Risk Aversion
Yesterday, energy prices faced downward pressure as the entire market struggled to resist the sell-off seen in equity markets. The recent tariff news has further clouded sentiment, particularly with reports of President Trump’s intention to impose tariffs on steel, aluminum, and other imports. Additionally, the Financial Times has indicated that Treasury Secretary Scott Bessent is advocating for a universal import tariff starting at 2.5% that would be increased gradually.
Despite the overall weakness in the oil market, the Middle East market is displaying relative resilience, with its unusual premium widening to over US$2/bbl. Strength has been noted in this market since late last year, and the imposition of US sanctions against Russia has led buyers of Russian oil to seek alternatives. Interestingly, even with sanctions affecting much of the Russian shadow fleet, tanker rates have been declining recently.
European energy prices also experienced significant declines, with TTF closing 3.7% lower and falling below EUR48/MWh. Discussions regarding potential transit flows of Azeri gas through Ukraine are likely adding to the pressure. Furthermore, the pace of storage withdrawals has slowed, providing some reassurance to the market. Currently, EU gas storage is just under 56% capacity, down from 72% at this time last year, and below the five-year average of 63%.
Metals – Tariffs on the Horizon
The new week began with industrial metals trading under pressure, as copper fell from a two-month peak amid concerns regarding China’s economic growth, following disappointing factory activity and profit data, despite recent initiatives from Beijing to stimulate the economy. While there have been various support measures from the Chinese government in recent months, they have yet to significantly affect demand for industrial metals. China’s official manufacturing PMI index has dropped to 49.1, the lowest since August, and the non-manufacturing index for construction and services has fallen to 50.2. The uncertain trajectory of China’s economic recovery poses a major downside risk to our outlook for industrial metals in 2025.
Threats of tariffs are likely to further negatively impact sentiment as reports indicate President Trump is preparing to impose tariffs on imports of steel, aluminum, and copper, although specific details remain scarce. The US Geological Survey (USGS) notes that the US has a net import reliance of 13%, 44%, and 46% for iron & steel, aluminum, and copper, respectively.
In the precious metals sector, prices also dropped yesterday due to a global slump in technology stocks following the successful emergence of the Chinese AI startup DeepSeek, which prompted traders to cover margin calls. However, gold has risen over 4% this year, and we anticipate that trade tensions and geopolitical concerns will drive it to another record high.
Agriculture – Favorable Weather for Cocoa
Recent rainfall in West Africa has raised hopes for better cocoa plant growth following the dry and hot Harmattan winds. The weather conditions seem to be shifting positively for major cocoa-producing areas, potentially supporting the plants in producing new flowers.
According to the USDA’s weekly export inspection data for the week ending January 23, US exports of corn rose, while soybean and wheat exports experienced a slowdown. Specifically, US weekly corn export inspections totaled 1,247kt, down from the previous week’s 1,542.3kt but up from 926.3kt a year ago. Soybean export inspections reached 729.4kt, lower than the previous week’s 979.3kt and last year’s 913.5kt. Conversely, wheat export inspections increased to 484.5kt, up from 261.8kt the week before and 283.8kt a year ago.
Disclaimer: This publication is prepared by ING for informational purposes only and does not consider specific user circumstances, financial situation, or investment objectives. It is not intended as investment, legal, or tax advice, nor is it an offer or solicitation to buy or sell any financial instrument. Read more
Original Post
