Cocoa Leads Commodity Gains, Steel Ingredients Struggle
As 2024 draws to a close, the commodity market has seen dramatic price movements, with cocoa and coffee emerging as the biggest winners. These “soft” commodities have benefitted from a combination of adverse weather and supply disruptions, making them the standout performers for the second year in a row.
Cocoa prices nearly tripled over the year, hitting an all-time high of $12,931 per metric tonne in New York. The surge was primarily driven by a persistent supply deficit in West Africa, the world’s largest cocoa-producing region. Countries like Ivory Coast and Ghana have experienced crop losses due to dry weather, disease outbreaks, and the loss of land to illegal gold mining. These issues, compounded by reduced plantations, have deepened concerns about future supply, prompting the market rally. Similarly, coffee prices saw a significant spike, reaching their highest levels in over 40 years. This surge was triggered by severe droughts in Brazil, the world’s top coffee producer, which has caused substantial damage to upcoming crops. Both cocoa and coffee highlight the risks associated with sourcing products from geographically concentrated regions, where adverse conditions can lead to sharp price movements.
However, not all sectors in the commodity market had a good year. Steel-making ingredients, including iron ore and steel-related materials, struggled in 2024 due to weak demand from China, the world’s largest commodity consumer. China’s ongoing property crisis and a cooling economic recovery have dampened demand for steel, with iron ore prices poised to fall further in 2025. The growth in supply, combined with reduced steel production in China, has created a bearish outlook for iron ore prices, despite efforts by Beijing to stimulate the economy. Metals such as aluminium saw price increases in 2024, driven by tight supply and optimism around China’s stimulus measures. However, the broader outlook for steel-related commodities remains grim, with analysts predicting further price pressure in 2025.
On the energy front, oil prices faced headwinds, with West Texas Intermediate crude poised to register its third consecutive annual decline in 2025. This is attributed to supply outstripping demand, despite efforts by OPEC+ to maintain production cuts. The strong US dollar and the appeal of gold as a safe haven are likely to keep precious metals supported, with gold and silver seeing significant gains in 2024. Agricultural commodities also experienced mixed results. Palm oil futures surged by about 20%, supported by Indonesia’s biodiesel mandate and adverse weather conditions in key producing countries. On the other hand, wheat, soybeans, and corn are expected to post losses for the year, although wheat may see a rebound in 2025 due to weather risks in Russia, the world’s largest wheat exporter.
Looking forward, global trade tensions, particularly the potential return of Donald Trump to the White House, could shape the commodity landscape in 2025. Analysts are particularly concerned about the impact of his trade policies, including possible tariffs on key commodity producers like Russia and Iran. The complex interplay of supply disruptions, geopolitical shifts, and economic policies will likely continue to drive volatility in global commodity markets.
