Commodities 2025: Scarcity Versus Headwinds - Inflation, Supply, Dollar, and the Green Transition

The commodity universe in 2025 faces conflicting forces: physical-market constraints (especially in metals, energy) suggest upside potential; but slower global growth, a weaker dollar (which typically supports commodities) and structural demand evolution (green transition) add complexity. For example, Morgan Stanley & Co. identifies three major areas to watch in commodities: inflation, USD trajectory and physical supply deficits. Meanwhile the World Bank projects a modest decline in commodity prices (-5% in 2025) on aggregate, led by oil.

Key Thematic Drivers:

1. USD and interest-rate backdrop. A weaker dollar helps commodity prices; conversely, dollar strength or higher real yields would weigh.

2. Physical supply constraints & demand shocks. Metals and energy sectors face bottlenecks; green transition demand (e.g., copper, lithium) adds structural tailwinds.

3. Global growth risk and demand ceilings. With global GDP growth modest, demand growth for many commodities is capped, especially in industrial sectors.

4. Geopolitical/energy-security premium. Energy supply disruption (Middle East, shipping lanes) or sanctions can trigger price spikes.

5. Transition and structural shifts. The shift toward renewables, electrification and critical-metal focus changes the commodity mix; traditional hydrocarbons may face longer-term headwinds despite short-term supply tightness.
   

Strategies & Positioning Implications:

• Maintain a core allocation to broad commodity exposure (via ETFs or selective physical/metals funds) as inflation/real-asset hedge.

• Add selective tilts: e.g., copper/critical-metals exposure given structural growth; oil only with conviction around specific supply-side risk.

• Employ hedges for global growth weakness (e.g., short commodities or invest in soft commodities less dependent on industrial growth).

• Monitor currency/interest-rate indicators and shipping/logistics metrics which can serve as early warning signals for commodity price swings.
  

Key Takeaways:

• Commodity markets are supported by supply constraints and transition demand, but capped by modest global growth.

• A weaker U.S. dollar and lower real interest rates boost commodity returns; conversely the opposite will hurt.

• Structural themes (green metals, energy security) provide differentiated opportunities beyond broad-based commodity exposure.

• Oil remains volatile and heavily dependent on geopolitical/supply signals rather than clean demand trends right now.

• Diversification within commodities is more important than ever—don’t treat the sector as monolithic.