Is the strongest El Niño in history approaching? Barclays: Palm oil, rubber, and coffee could rise 30%-40% within 18 months.

An unprecedented super El Niño is forming, and the commodity market is facing a new round of supply shocks.

On August 30, Craig Rye, a sustainable investment research analyst at Barclays, warned in a new report that the tropical Pacific El Niño index may peak at nearly 3.2 degrees Celsius in late 2026 or early 2027, about 15% stronger than the super El Niño of 2015-16, which will have a major impact on global agricultural, energy and industrial commodity markets.

In the agricultural commodities sector, Rye predicts that palm oil, coconut oil, and rubber could rise by 30% to 40% over the next 18 months, while Robusta coffee could see a 20% to 30% increase, and rice prices could rise by 10% to 20% . The supply shock will then spread to industrial metals, with aluminum and copper potentially rising by up to 20% over 18 months, and thermal coal by as much as 20% to 40%.

This warning is not an isolated signal. The commodities market as a whole is tightening—the Quantix Commodity Index total return has surged more than 22.5% since the end of June, hitting a record high, tracking 24 dollar-denominated futures contracts across energy, agriculture, livestock, industrial metals, and precious metals. Jeff Curri, former senior commodities strategist at Goldman Sachs, recently stated bluntly: "Scarcity in the physical world is returning, and the illusion of abundance may be a thing of the past."

El Niño intensity may break historical records, with agriculture bearing the brunt.

In his report, Rye cited multi-model predictions from the International Research Institute for Climate and Society, indicating that the peak of this El Niño index may be close to 3.2 degrees Celsius, with the time window concentrated between the end of 2026 and the beginning of 2027.

If the prediction comes true, its intensity will surpass the strongest El Niño to date, the 2015-16 super El Niño, by about 15%, becoming the strongest El Niño event on record.

Rye stated that as confidence in a historic El Niño increases, the probability of significant disruptions to agricultural, energy, and industrial commodity markets has risen considerably. Historically, El Niño events have often coincided with widespread droughts, floods, and extreme temperatures, with particularly severe impacts on major agricultural regions such as Southeast Asia and Central America.

Among agricultural commodities, Rye believes the most concentrated risks in the near term lie in varieties highly sensitive to weather. Palm oil, coconut oil, and rubber, whose main production areas are in Southeast Asia, are extremely vulnerable to drought and abnormal rainfall, and prices are expected to rise by 30% to 40% within 18 months . Robusta coffee, mainly produced in Vietnam and other Southeast Asian countries, is expected to see a price increase of 20% to 30% . Regarding rice, drought threatens crop and water supplies in parts of Southeast Asia and Central America, potentially leading to a 10% to 20% price increase .

The impact spread to industrial metals, with copper, aluminum, and coal all within range.

Rye warned that the supply shock in the agricultural sector will not stop there and will further spread to industrial commodities. He predicts that aluminum and copper prices could rise by as much as 20% in the next 18 months, while thermal coal could rise by 20% to 40%.

The transmission path is clear: droughts caused by El Niño will reduce hydropower generation, increase electricity demand and raise electricity prices, thereby increasing the cost of aluminum smelting; at the same time, extreme weather will directly disrupt mine operations and port logistics, compressing the supply of metals such as copper.

Rye points out that mine shutdowns, reduced hydropower, and structural shifts in electricity demand will collectively amplify the impact of drought and extreme weather on the industrial metals market.

This logic has already been validated in the current market. Reports indicate that floods in Chile have caused some mines to shut down, and drought in Papua New Guinea has disrupted shipping on the Ok Tedi River, affecting copper shipments. LME copper prices have risen for nine consecutive weeks, approaching historical highs.

Multiple factors combined mean that the supply shock is not a single climate event.

It is worth noting that the current tightening of the commodity market is not solely driven by El Niño, but is the result of multiple structural factors.

In its report, Rye pointed out that adverse weather, years of insufficient capital investment, and continuously declining inventories are converging to create a new supply shock. This aligns closely with UBS's assessment this week that clients should "position themselves for an upward cycle in commodities."

From a broader perspective, the Quantix Commodity Index has risen by more than 22.5% since the end of June, reaching a record high . It covers multiple sectors including energy, agriculture, livestock, industrial metals and precious metals, indicating that this round of gains is no longer limited to a single category, but rather shows characteristics of comprehensive tightening.

Jeff Currie's assessment was succinct and direct: "The illusion of abundance is likely a thing of the past."

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