By Burhan Sansarlioglu and Emir Yildirim
ISTANBUL (AA) – The commodity market saw sharp fluctuations in February, driven by volatility caused by US President Donald Trump’s tariff threats and foreign policy.
Trump’s statements on tariffs and retaliatory statements from targeted countries fueled the concerns that trade wars could escalate. His remarks on Gaza were among the main factors influencing commodity prices last month.
Ongoing deflation concerns in China also affected the commodity market, while Trump’s potential plan to take over Gaza could lead to more attacks in the Red Sea, raising supply concerns and transportation costs.
Analysts say the decline of globalization and the prominence of trade protectionism could bring inflationary pressures and raise long-term demand for industrial metals, energy, and agricultural products. While Trump’s policies could push commodity prices higher, decreased investor demand due to tariffs may also increase sales pressure.
Another source of inflationary pressure is Trump’s tariffs, which, under his “America First” policy, target major US trade partners while limiting the Federal Reserve's policy flexibility.
Analysts note that concerns about Trump’s policies and the Fed’s could contradict, leading to increased risk perception despite the significant gains in fighting inflation.
Macroeconomic data showed that the Fed is less likely to cut rates in the current environment, reducing risk appetite in the commodity market.
Fed Chair Jerome Powell said in Congress that the US economy is close to the 2% inflation target, but it has yet to reach it.
- Gold diverges while precious metals fall
Gold rose 2% per ounce in February as concerns over economic growth came to the fore, while uncertainties over Trump’s tariff plans gave rise to gold due to its safe-haven feature.
Trump’s decision to impose tariffs on the aluminum and steel sectors, China’s announcement that it would also impose tariffs on the US, and potential US tariffs on the EU also contributed to gold’s rise.
At the same time, the share of gold in total reserves continued rising due to the global push to lessen the US dollar’s dominance, leading the world’s central banks to purchase more gold due to uncertainties over the global economy and rising geopolitical tensions.
Russia’s reserve assets were seized due to its invasion of Ukraine, leading the country to increase its gold reserves, while the People’s Bank of China continued to increase its gold reserves amid ongoing consumer purchases, supporting gold prices.
South Korea’s gold mint temporarily suspended bullion sales due to some problems over managing supply and demand, while other institutions raising their gold price forecasts also contributed to the rise in gold.
Silver fell 0.8% per ounce due to demand concerns over the global economy and trade, as it is widely used in the industrial field.
Platinum and palladium declined 0.8% and 3.7% per ounce, respectively.
- Base metals up across board
Copper, nickel, and aluminum rose 5.7%, 2.4%, and 0.5% per ounce, respectively, driven by increased geopolitical risks, giving rise to their demand due to their widespread use in the defense industry. Nickel’s increase was fueled by reduced production from Indonesian smelters, raising concerns about supply.
China’s tightening requirements for the construction of new copper smelters put upward pressure on copper prices, while global activity in the country, especially with grid infrastructure and electric vehicles, contributed to the demand.
Analysts say a revival of the physical market for copper in China came to the fore as its EV, solar, energy, and wind energy sectors boomed.
Chinese real estate giant Vanke will be given an aid plan, and a credit support line will be opened for the company, reports say, further raising copper prices.
Meanwhile, a shortage in copper concentrate and ore supply was of note, while North American copper miners’ 2024 production was below estimated, and a major power outage in Chile threatened to disrupt copper supply.
Trump signed an executive order to instruct the US Department of Commerce to investigate possible tariffs on copper imports.
At the same time, the rise in aluminum was supported by Trump’s decision to impose additional tariffs on aluminum and steel imports.
The EU’s support of sanctions on Russian aluminum and the decline in global aluminum production in February also contributed to the rise.
- Brent crude oil falls over 4%
The barrel price of Brent crude oil fell 4.3% in February due to concerns that Trump may impose tariffs on the energy sectors, prompting investors to withdraw from the oil market, while his policies led to other concerns that they would affect economic growth and energy demand.
Trump’s attempts to support Iraq’s higher oil exports also introduced downside risks to prices.
Natural gas soared 25.5% as the temperatures fell, supporting demand.
Reports that China would impose tariffs on US natural gas led Beijing to purchase more natural gas from Washington before tariffs were imposed, while the US’ widening inventory gap led to the rise.
- Agricultural commodities see selling pressures
Wheat rose 0.3% per bushel in February due to production concerns caused by unfavorable weather in the Black Sea region, India, and the US. Freezing temperatures in the Black Sea and concerns over cold weather in parts of Russia and the US heightened worries about crop damage.
Corn fell 2.6% per bushel due to increased corn production estimates and more productive areas in Ukraine, while rice declined 4% per bushel as Thailand’s production increased and soybeans declined by 1.1%.
Coffee decreased 1.3% per pound as the Brazilian real depreciated against the US dollar, impacting coffee prices, while the decline in demand estimates and concerns over global growth contributed to the drop.
Sugar declined 4.6% per pound as oil prices fell due to its use in ethanol.
Cocoa fell 16% per ton last month as the decline eased due to higher prices, while cotton climbed 1.1% per pound as US cotton exports increased, giving rise to demand.
- Copper expected to rise after Trump’s decisions
Ole Hansen, head of commodity strategy at Saxo Capital, said that the rise in US copper traded in London reflects the difficulties that US consumers will have to experience if Trump imposes tariffs, noting that the US is unable to boost its own copper production and refining capacities, leading to higher prices compared to the rest of the world.
Hansen noted that the US should import copper from places like Chile instead.
Carsten Fritsch, a commodity analyst at Commerzbank, stated that tariffs on copper could give rise to prices in the Commodity Exchange market in the US, prompting American consumers to pay more for copper than others.