"The Iran war, the Russia-Ukraine conflict, and El Niño overlap," HSBC: Global commodities enter a "super bull market.

The commodities market is facing an unusual confluence of multiple supply shocks, with geopolitical conflicts, extreme weather, and structural demand growth all contributing to pushing up prices. HSBC believes the market has entered a phase of "super squeeze," and commodity prices may remain high for an extended period.

In his latest report, HSBC’s chief global commodities economist, Paul Bloxham, pointed out that the Iran war, the Russia-Ukraine conflict, and the El Niño phenomenon continue to disrupt global supply, while investment in artificial intelligence infrastructure and energy transition are constantly driving up demand for energy and metals. The “super squeeze” situation continues, and the risk of further increases in commodity prices is accumulating.

From both the supply and demand perspectives, the market's existing high inventory buffer is being rapidly depleted, and uncertainties surrounding key shipping routes such as the Strait of Hormuz and the Red Sea remain unresolved. Multiple commodities, including energy, metals, and agricultural products, are facing varying degrees of supply constraints. HSBC has therefore raised its 2026 average commodity price increase forecast from 16% to 22%, and its 2027 forecast by 14%.

Market conditions have already begun to reflect this change: London copper futures once broke through $14,700 per ton, and Brent crude oil futures climbed back above $102 per barrel. HSBC's purely statistical model, COCCLES, also shows that the commodity market has entered a "super bull market" phase, which typically lasts longer than other cycles.

As geopolitical conflicts continue to escalate, supply risks are spreading from energy to all commodities.

Six months after the outbreak of the Middle East conflict, it remains one of the most important variables in the commodity market. The Strait of Hormuz is currently largely closed, and there is significant uncertainty regarding when and under what conditions it will reopen. With the repeated escalation and de-escalation of the conflict, energy and commodity prices have experienced dramatic fluctuations.

Meanwhile, Houthi attacks on ships in the Red Sea and Saudi vessels have further disrupted shipping in the Bab el-Mandeb Strait. The obstruction of this crucial waterway not only drives up transportation costs but also increases uncertainty in the supply chains of crude oil, refined petroleum products, and other commodities.

As the Russia-Ukraine conflict enters its fifth year, its impact on global supply is spreading further. Recently, the supply of refined petroleum products such as diesel and food has been significantly impacted, with supply disruptions extending from crude oil to sulfur, fertilizers, aluminum, helium, and various refined petroleum byproducts such as aviation fuel and naphtha.

This means that the supply constraints in the commodity market this round are no longer limited to a single energy commodity, but are beginning to spread to areas such as metals, chemicals, and agricultural products. The Bloomberg Commodity Index has risen 18% year-to-date and 24% year-on-year, reflecting that the supply shock is having a broader price transmission effect.

With inventory buffers being depleted rapidly, the energy market faces the risk of bottoming out.

Previously high inventory levels served as a crucial buffer for commodity markets to absorb supply shocks and maintain supply-demand balance. However, as disruptions persist, this buffer is rapidly weakening, particularly in the energy market.

In the oil market, the US continues to export oil, consuming its strategic reserves. HSBC warns that if supply disruptions persist, the risk of inventories eventually falling to near-bottom levels will increase significantly. Once the inventory buffer is exhausted, any new supply disruptions could directly translate into stronger upward pressure on prices.

The natural gas market also faces a shortage of inventory. European natural gas inventories are significantly below target levels, and unusually hot summer weather has accelerated energy consumption. If inventories cannot be effectively replenished before winter, the supply-demand gap may widen further, increasing the risk of a winter price surge.

AI and energy transition drive metal demand, while El Niño exacerbates risks in agricultural products.

Structural changes are also occurring on the demand side. The investment boom in artificial intelligence infrastructure and the ongoing energy transition are driving global electrification demand, leading to stronger prices for most base metals. Copper prices have risen to record highs, reflecting both increased demand and the long-term supply constraints resulting from insufficient investment in new mines.

The supply and demand dynamics differ across various commodities. While the aluminum market has been disrupted by the Middle East conflict, some shipments have been able to pass through the Strait of Hormuz smoothly, thus limiting price increases. Lithium prices have risen by 130% over the past year, but historical experience shows that high prices often stimulate new supply, and increased production in Zimbabwe and Australia may limit further price increases.

Agricultural products are facing dual pressures from weather and costs. The strong El Niño event is intensifying, and the Southern Oscillation Index (SOI), which reflects the degree of abnormal atmospheric circulation in the tropical Pacific, has reached its extreme level in more than two decades . The risk of drought in Australia and Indonesia is rising, the Indian monsoon is weakening, and the weather in many parts of Southeast Asia is becoming hot and dry.

At the same time, the Middle East conflict and the Russia-Ukraine war have increased the supply risks of agricultural inputs such as fertilizers and diesel, and food prices have continued to rise recently, with wheat performing particularly well, while the prices of cocoa, coffee and other products have also risen in tandem.

In the precious metals sector, gold has retreated after peaking in January 2026, primarily pressured by rising long-term interest rates, with some investors shifting towards yield assets. However, Paul Bloxham believes that ongoing geopolitical risks, central bank gold purchases, and uncertainty in the bond market will continue to support precious metals, while limited mine supply may also benefit platinum and palladium.

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