Commodity Power: Investing in Raw Materials

In an era of shifting economic currents and mounting uncertainties, commodities offer a powerful opportunity to diversify portfolios and capitalize on global trends. This guide provides both inspiration and practical advice for navigating raw material markets in 2025.

Global Commodity Market Outlook

The broad commodity price index is projected to fall by around twelve percent in 2025, reaching a six-year low. Energy prices will lead this downturn, with forecasts showing a seventeen percent drop for 2025 and an additional 6% decline in 2026. Both agriculture and metals are expected to follow suit, with many key products sliding by over 10%.

Despite these declines, nominal commodity prices by 2026 will remain seventeen percent above the 2015–2019 average. However, after adjusting for inflation, real prices will dip just below that historical benchmark. The past five years have delivered the most volatile commodity markets in over half a century, underscoring the need for informed strategies and resilient portfolios.

Key Commodity Segments: Trends and Forecasts

Understanding the nuances of each commodity category is essential for identifying where opportunities and risks intersect.

Energy: The Leading Downturn

Oil markets face sluggish demand, particularly from China, while non-OPEC production growth offsets OPEC+ cuts. This imbalance creates a dilemma: preserving market share or defending prices. Natural gas markets will be relatively stable, supported by slower-than-expected US LNG export growth. By 2030, margins in power and gas are forecast to outpace oil, fueled by renewable adoption and market liberalization.

Metals: Gold and Base Metals

Gold stands out as a bright spot. Central bank purchases continue to support prices amid broader declines. Meanwhile, base metals face price pressures, but rising trading margins suggest that trading companies may enjoy better profitability even as spot prices wane.

Agriculture: From Grains to Soft Commodities

Grains have fallen sharply on strong global supplies, though wheat appears to be bottoming with modest upward pressure. Soybean markets remain loose due to record Brazilian harvests and weak demand. Rice prices will likely slide further as India’s export restrictions ease. Fertilizer costs, on the other hand, are rising and may provide support under some agricultural commodities.

Industrial Materials and Softs

Steel continues to suffer from overcapacity and softened construction demand. Soft commodities like cocoa and sugar remain sensitive to weather events and shifting consumer patterns.

Supply, Demand, and Geopolitical Drivers

The interplay of supply, demand, and geopolitics is reshaping the raw materials landscape.

• Demand Weakness in China: Industrial and construction slowdowns curb oil and metal consumption.
• Robust Production Growth: Inventory builds in oil, wheat, and steel amplify downward price pressure.
• Geopolitical Tensions: Export bans, trade sanctions, and regional conflicts inject volatility.
• Energy Transition Trends: Renewables and electrification are redefining long-term value pools.

Investment Vehicles and Portfolio Strategies

Commodities can play a vital role in a well-balanced portfolio, especially when inflation concerns persist and traditional assets face headwinds.

Investors have several access points:

• ETFs and ETCs: Invesco Physical Gold for gold exposure; Invesco DB Agriculture for broad agricultural baskets; WisdomTree Cocoa for cocoa futures.
• Futures and Options: Direct commodity contracts allow sophisticated investors to capture price moves and hedge existing exposures.
• Producer Stocks: Equities of companies like Rio Tinto, Glencore, and Anglo American provide leveraged exposure to metal prices.

When constructing a commodity sleeve, consider low correlation with equities and bonds, and strictly manage leverage to avoid amplified losses in volatile swings.

Risks and Considerations

While commodities offer diversification and inflation hedging, they carry distinct risks:

• Sharp Price Declines: Global slowdowns or renewed trade tensions could deepen the projected drops.
• Sticky Core Inflation: Even if food and energy prices ease, underlying inflation may remain elevated.
• Volatility Spikes: Sudden geopolitical events or weather shocks can trigger rapid price swings.
• Structural Shifts: The move toward renewables and changing consumption habits could reshape long-term demand.

Summary Table: Key Commodity Price Trends for 2025

Market Sentiment and Strategic Moves

Looking ahead, commodity trading margins are expected to grow steadily through the decade, with power and gas value pools expanding while oil’s share declines. Traders are prioritizing optimization, flexibility, and emerging assets tied to renewable energy. Gold maintains its status as a hedge against uncertainty, and agricultural commodities may present selective opportunities as prices bottom out.

Practical Steps for Investors

1. Establish clear objectives: Define whether you seek inflation protection, diversification, or directional exposure.

2. Choose the right vehicles: Balance ease of access (ETFs/ETCs) with precision (futures, producer stocks).

3. Monitor structural trends: Keep an eye on energy transition policies, trade developments, and climate risks.

4. Manage risk: Use position sizing, stop-losses, and periodic rebalancing to protect against sharp swings.

Conclusion

In a world characterized by shifting demand patterns, evolving supply dynamics, and technological transformation, commodities remain a vital component of a resilient investment strategy. By understanding global trends, selecting appropriate vehicles, and managing risks carefully, investors can harness the raw power of materials markets and position themselves for long-term success.