SunSirs:Super El Niño Strikes; Disruptions Hit Everything from Agricultural Products to Industrial Metals

An extremely rare super El Niño event is gradually taking shape, and the global commodity market is set to face a new round of supply shocks.

On August 30, Craig Rye, an analyst at Barclays Sustainable Investment Research, released a new report warning that the tropical Pacific El Niño index is expected to peak at nearly 3.2°C between the end of 2026 and the start of 2027, with a strength about 15% higher than that of the 2015-2016 super El Niño event, which will significantly impact the global agricultural, energy and industrial commodity markets.

In the agricultural sector, the report predicts that in the next 18 months, prices of palm oil, coconut oil and rubber are expected to rise by 30%-40%; the price of robusta coffee is estimated to increase by 20%-30%; and rice prices may rise by 10%-20%. Supply disruptions will also spread to industrial commodities, with copper and aluminum seeing a maximum gain of 20% in the next 18 months, and thermal coal seeing a price range of 20%-40%.

The supply risk brought by El Niño is not an isolated expectation. The overall commodity market has entered a tightening cycle. The Quantix Commodities Total Return Index has risen by more than 22.5% since the end of June, hitting a record high, covering 24 US dollar-denominated futures varieties including energy, agricultural products, livestock, industrial metals and precious metals. Jeff Currie, former senior commodity strategist at Goldman Sachs, pointed out that the scarcity of physical commodities is returning, and the era of abundant supply is likely over.

The intensity of El Niño is expected to set a historical record, with the agricultural sector bearing the brunt

Rye cited multi-model forecast data from the International Research Institute for Climate and Society, stating that the peak of this El Niño event is likely to occur between the end of 2026 and the start of 2027, with a peak temperature close to 3.2°C. If the forecast holds, this will become the strongest El Niño event on record, with its intensity increasing by about 15% compared to the 2015-2016 super El Niño event.

As the probability of a historic El Niño event rises, the risk of disruptions to the global agricultural, energy and industrial markets has significantly increased. Historical experience shows that El Niño is often accompanied by large-scale droughts, floods and extreme heat, with core agricultural producing areas such as Southeast Asia and Central America being the most vulnerable.

Among agricultural products, varieties highly dependent on weather face the most prominent risks. The main producing areas of palm oil, coconut oil and rubber are concentrated in Southeast Asia, which are highly susceptible to drought and abnormal precipitation. The price is expected to rise by 30%-40% within 18 months; the main producing countries of robusta coffee are mainly in Southeast Asia, with an estimated increase of 20%-30%; drought will also threaten crop growth and water resources in some producing areas in Southeast Asia and Central America, putting upward pressure on rice prices of 10%-20%.

Shocks spread to the industrial sector, affecting copper, aluminum and thermal coal

The report believes that supply disruptions will not stop at agricultural products, but will also spread to the industrial commodity chain.

The transmission logic is clear: El Niño-induced drought will suppress hydropower output, push up electricity demand and electricity prices, and increase the production costs of electrolytic aluminum; extreme weather will also disrupt mine production and port logistics, directly compressing the effective supply of metals such as copper. Multiple factors including mine maintenance and shutdowns, declining hydropower output and changing electricity demand structure will amplify the impact of extreme weather on the industrial metal market.

Relevant signals have already appeared in the real market: floods in Chile have caused some mines to suspend production, drought in Papua New Guinea has blocked shipping on the Ok Tedi River, and copper mine shipments have been constrained; LME copper prices have risen for nine consecutive weeks, approaching historical high ranges.

Multiple factors resonate, supply tightening is not only driven by climate

It is worth noting that the current round of commodity tightening is not driven by a single El Niño event, but the result of the superposition of multiple structural factors.

The report pointed out that extreme weather, long-term underinvestment in the industry and the continuous decline of social inventories have jointly spawned a new round of supply risks, which corroborates UBS's recent view of "laying out the commodity upward cycle".

From a macro perspective, the Quantix Commodities Index has risen by more than 22.5% since the end of June and hit a historical high, covering multiple major categories of varieties, indicating that this round of market rally is not an individual variety fluctuation, but a concentrated reflection of the tightening of the supply side of the entire market.

SunSirs has been continuously tracking price data for over 200 commodities for nearly 20 years, please contact support@sunsirs.com for subscription.