Economist Intelligence Unit forecasts industrial raw materials prices to rise in 2025-2026, but US trade policy will temper gains; base metals prices down in recent weeks after US extended existing 25% tariffs on aluminum and steel to all countries

May 5, 2025 (Country Analysis Advanced: Commodity Forecast) –

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Prices of industrial raw materials will rise in 2025-26

EIU forecasts that the prices of industrial raw materials (IRM) will increase in 2025-26, but rises are now likely to be more muted owing to the effects of US trade policy. Prices for most base metals have fallen in recent weeks owing to concerns about the impact of higher US tariffs on global growth. The administration of the US president, Donald Trump, has already extended existing 25% tariffs on aluminium and steel to all countries. The aluminium tariffs will primarily hit Canada, which accounts for two-thirds of US imports of the lightweight metal, and is also a major supplier of most of the other base and ferrous metals. The steel tariffs will also have a major impact on producers in Canada, as well as Brazil, Mexico and South Korea. Although prices in the US have soared since the tariffs went into effect, the direct impact on global benchmark prices will be muted. The same is the case for copper, imports of which are now the subject of a trade investigation by the Trump administration and liable to be subject to higher tariffs, and even export controls, in the near future.

Although weak construction activity in China and the US pivot towards protectionism remain major challenges in the short run, climate change and technology advancements, particularly relating to the decarbonisation agenda, will sustain strong demand for aluminium, copper and nickel in the medium term. Factors such as resource nationalism and stricter environmental laws will limit the pace of mine supply growth. Copper prices will continue rising, moderately at first, except in the US, where prices are already soaring owing to the threat of tariffs. Conversely, nickel prices will be constrained until 2026, owing to rising stocks of class 1 nickel in LME warehouses as various Chinese smelter projects, supplied by Indonesian feed stock, have improved availability. The recent tariff war initiated by Mr Trump, particularly targeting imports from China, could further disrupt nickel trade flows. Higher US tariffs may encourage China to secure more Indonesian nickel, tightening supplies elsewhere and potentially pushing global prices higher in the medium term.

Trade war raises risks to the outlook for commodities prices

China and the US have descended into a major bilateral trade war following a series of increases in US tariffs announced by the Trump administration on Chinese exports. Currently, US tariffs on imports from China stand at 145% on most goods, with some limited exemptions and a few goods facing even higher rates. China has responded by pushing its tariff on US-origin products to 125% in most cases while also prohibiting the importation of some specific US goods and limiting the ability of US firms to export critical minerals from China. The onerous tariffs will sever bilateral trade between world's two largest economies.

Although the US has paused its "reciprocal tariff regime" on other countries until early July, its latest trade measures have raised its weighted average tariff rate to 25.8%-the highest in over a century. Existing tariffs on US imports of steel and aluminium, as well as on Canadian and Mexican goods that are not compliant with the United States-Mexico-Canada Agreement (USMCA), remain in place. We expect that the blanket 10% tariff across all US imported goods, which became effective on April 5th, will be a permanent fixture of the new US policy framework, despite attempts by trade partners to negotiate exemptions.

Demand for critical minerals tied to the green transition will firm again

The green transition will raise demand for critical minerals like cobalt, graphite and lithium. Demand for certain base metals, critical minerals and rare earths used in clean energy technology-notably copper, nickel, zinc, cobalt, lithium, graphite and silicon-will increase twofold, and in some cases up to fivefold, by 2030, according to the International Energy Agency (IEA). Recent demand has not lived up to these expectations, however, with prices for many critical minerals and rare earths falling to all-time lows and likely to remain depressed until at least 2026.

Geopolitical pressures will keep a floor under crude oil prices

We forecast that oil prices will average US$67.1/barrel in 2025 and US$63/b in 2026 (revised from US$73/b and US$69.9/b respectively. A still-tight market and the US driving season (between Memorial Day and Labour Day) will put a floor under prices for the rest of 2025, before trending downwards again as more OPEC+ supply slowly comes online, sending the market into surplus. Downside and upside risks to our price forecasts are significant. We currently forecast only a mild recession in the US in 2025, but signs that the downturn will be more severe or long-lasting would lead to further sell-offs and send prices below US$60/b. OPEC may also decide to roll back previous production cuts more quickly than we anticipate in an effort to capture market share, which would also drive prices downwards. The main upside risks are geopolitical and related to US policy vis-à-vis Iran. There is also a possibility that our forecasts for higher production this year in the US, Brazil, Canada and Guyana will not be met. Falling reserves-China's oil reserves have reportedly fallen to two-year lows-raise the risk that the market will remain in deficit for longer, affecting prices.

We now expect oil prices to increase moderately in 2027, before continuing to trend downwards from 2028. With the price of West Texas Intermediate (WTI) set to remain below US$60/b in 2026, fracking activity will remain subdued, and we now expect US production to fall in 2026 and 2027. This will cause the market to tighten, especially if OPEC restricts rises in production. Meanwhile, even though Mr Trump's trade policies will have a significant negative impact on production, other policy measures will boost US demand once the economy emerges from recession. His administration has already overturned electric vehicle (EV) targets adopted by the Biden administration and has suspended funding for the build-out of the necessary EV charging infrastructure. Mr Trump has also already ordered that car fuel efficiency standards and targets be lowered or scrapped, and he is likely to roll back other Biden-era green transition measures. This will push US peak oil consumption beyond 2028, which will put a floor under prices in the medium term.

Natural gas prices will remain elevated

We still expect natural gas prices in Europe, Asia and the US to remain elevated after the strong rises of late 2024 and early 2025, with prices averaging higher in 2025 than in 2024. One of the main drivers keeping prices in Europe higher for longer will be the knock-on effect of heavy withdrawals from stocks in November-March; the requirement to import more LNG to replenish stocks in the second and third quarters of 2025 will keep upward pressure on prices. We also expect US domestic prices to rise significantly-from a historically low base-because of increased demand from exporters and constraints on production. Gas demand in Asia will continue to grow, but the rate will slow because of the impact of US tariffs. Prices will remain too high to allow any significant switch from coal to gas in the power sector. We forecast that European prices will fall in 2026 in response to the increase in global LNG capacity, but they will remain high by historical standards, which will constrain any recovery in industrial demand.

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