Following the Middle East conflict, commodity markets could face another wave of repricing driven by the impending El Niño.
Multiple climate agencies expect the equatorial central and eastern Pacific to enter an El Niño state in May of this year, potentially reaching moderate to strong intensity in the second half of the year and lasting through December. Extreme weather events can disrupt commodity supply and demand by damaging crops and blocking logistics, leading to price volatility. If El Niño reaches strong or super-strong levels, it could trigger significant structural inflation and seriously weigh on economic output.
El Niño is a climate phenomenon characterized by abnormal warming of sea surface temperatures in the equatorial central and eastern Pacific Ocean. It typically occurs every 2 to 7 years and lasts 9 to 12 months. The phenomenon causes climate anomalies worldwide, including high temperatures and drought in Southeast Asia and Australia (raising wildfire risks), a pattern of northern drought and southern flooding in China, excessive rainfall in South America and the southern US, and high temperatures in the Midwest and eastern US.
El Niño events are generally classified into four categories: weak, moderate, strong, and super-strong. The super-strong threshold requires a sea surface temperature anomaly exceeding 2°C. The most recent super-strong event occurred in 2015–2016.
Reviewing historical commodity performance during El Niño events, institutions have found that production of palm oil, natural rubber, sugar, and copper ore is more sensitive to extreme weather, with higher probabilities of output declines. The impact on cotton production remains unclear, while soybean production may potentially benefit.
Specifically, the most significant production declines during past El Niño events were largely driven by extreme drought. Notably, Southeast Asia, South Asia, and Australia are typical drought-affected regions and are also the world’s most critical production areas for palm oil, natural rubber, and sugarcane (for sugar).
Among these commodities, natural rubber and sugar show relatively high certainty for price increases. Major rubber-producing countries like Thailand and Indonesia are located in the core drought zone. Haitong Futures notes that drought can suppress rubber production through three main pathways: inhibiting the physiological growth and latex yield of rubber trees; directly reducing the number of days available for tapping; and increasing the risk of pests and diseases. Sugar is primarily produced in India and Thailand, both core drought zones. As sugarcane is a moisture-loving crop, drought impedes plant growth, reducing both yield per hectare and sugar content.
Post time: Jun-08-2026
