Deutsche Bank: The external environment for commodities is difficult, but investors should still “stay optimistic”

Overview

In this Commodities Outlook report, Deutsche Bank assesses the medium-term external environment for commodities. The report acknowledges pressure from geopolitical volatility, dollar strength, investor positioning, and downward revisions to global growth forecasts, but emphasizes that global growth remains resilient to energy disruptions, while AI investment, critical mineral supply chain resilience building, and tight supply in selected commodities provide support to the market.

Core views

The core view is that the external environment is challenging but not entirely negative. For precious metals, the report believes the drag from hawkish Fed expectations on gold has limits, the relationship between gold and interest rates may shift again, and expanding government debt will support gold and silver into year-end. For industrial metals, structural tightness in copper remains, while tariff uncertainty will create volatility; aluminum supply is recovering as Gulf capacity restarts, and after the rebound prices may normalize in 2027; iron ore faces rising supply pressure, but support from the cost curve above $100/t limits downside. For energy, crude oil is supported in the short term by the Strait of Hormuz, refinery utilization, and refined product crack spread dislocations, but a significant surplus in 2027 may become the dominant narrative.

Analysis framework

The report uses a combination of top-down and commodity-specific bottom-up analysis: it first evaluates the external environment for commodities across four dimensions—geopolitics, the US dollar, capital flows, and macro growth—then separately analyzes supply and demand, inventories, prices, and policy variables for copper, aluminum, iron ore, crude oil, gold, silver, and PGMs.

Methodology notes

• Macro environment frameworkFour-dimensional external environment assessment

  Geopolitics, US dollar, investor positioning, macro growth

  The report breaks down the external environment for commodities into four variables to explain the common pressures and support faced by different commodities.

• Supply-demand balance frameworkCommodity supply-demand and inventory analysis

  Supply disruptions, demand changes, inventory releases, cost curve

  It separately evaluates supply elasticity, demand shocks, inventories, and cost support for copper, aluminum, iron ore, crude oil, and PGMs to determine price ranges and medium-term direction.

• Precious metals macro pricing frameworkGold-interest rate-dollar relationship

  Real rates, US dollar, ETF flows, central banks, and government debt drivers

  The report argues that the historical relationship between gold and interest rates may shift temporarily, with near-term fund flows still acting as pressure, but long-term debt expansion serving as an upside driver.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Gold and silver

  Driven jointly by Fed expectations, real rates, the US dollar, ETF flows, and expanding government debt

  Strengths

  The Fed has limited room to turn more hawkish, while expanding government debt and reserve managers' willingness to increase holdings provide medium- to long-term support.

  Weaknesses

  ETF and speculative futures flows continue to weigh on prices in the short term, while a strong dollar and rising real rates pressure valuations.

  Comparison

  The report argues that the relationship between gold and interest rates is not stably fixed, and rising central bank demand in 2022-23 previously altered that relationship.

  Risks

  If inflation and policy rates continue to rise, ETF outflows widen, or the dollar remains strong, the rebound in precious metals may be delayed.

• Copper

  A structurally tight commodity affected by mine supply, electrification demand, AI capex sentiment, and US tariff policy

  Strengths

  Inelastic mine supply, electrification demand, and high greenfield capex support a high incentive price range.

  Weaknesses

  A stronger dollar and a pullback in AI capex-related equities are weighing on recent prices.

  Comparison

  Compared with other industrial metals, copper has been more resilient because of tighter micro supply-demand conditions.

  Risks

  The path of US copper tariffs is uncertain; if there are no tariffs or immediate tariffs trigger abrupt trade flow changes, LME prices could see sharp volatility.

• Aluminum

  Shifting from post-Middle East supply shock tightness toward supply recovery

  Strengths

  Inventories are low and H2 supply remains somewhat weak, leaving room for a moderate price recovery.

  Weaknesses

  Gulf smelter recovery has been faster than expected, significantly narrowing the supply deficit.

  Comparison

  Compared with copper, aluminum supply is recovering faster, and the market is closer to balance in 2027.

  Risks

  If Gulf capacity restarts continue to exceed expectations, prices may fall back more quickly toward about $3,000/t.

• Iron ore

  Affected by Chinese steel demand, port inventories, seaborne exports, and the Simandou ramp-up

  Strengths

  The high end of the cost curve above $100/t provides downside support during seasonal weakness.

  Weaknesses

  Rising Chinese steel inventories, weak mill profitability, strong seaborne exports, and the initial Simandou ramp-up create supply pressure.

  Comparison

  Compared with copper, which is constrained by structural supply limits, iron ore is more weighed down by Chinese demand and new supply.

  Risks

  If Chinese policy support is insufficient or steel demand continues to contract, surplus pressure in H2 could increase.

• Crude oil

  Affected in the short term by Strait of Hormuz flows, inventory releases, SPR, refinery utilization, and crack spreads

  Strengths

  Constrained commercial flows, high refined product crack spreads, and inventory releases provide short-term price support.

  Weaknesses

  If disruptions are repaired, a potential surplus of +4 mb/d in 2027 will become the main pressure.

  Comparison

  In the short term, crude oil prices are lower than what mean-reversion fundamental models imply, suggesting inventories and refinery adjustments have partly absorbed the supply shock.

  Risks

  US-Iran tensions, Russia-Ukraine-related refinery disruptions, and the pace of restored transit through the Strait of Hormuz will all alter the path.

• Platinum group metals

  Mainly driven by auto catalyst demand, Russian palladium supply, ETF flows, and linkage to the dollar/gold

  Strengths

  Lower Russian primary palladium supply keeps palladium temporarily in deficit.

  Weaknesses

  Global catalyst vehicle sales are declining, especially weaker ICE and hybrid vehicle sales in China, reducing auto demand for platinum and palladium.

  Comparison

  Platinum may shift into a mild surplus, while palladium remains in deficit due to lower Russian supply, though the imbalance is smaller than in the past five years.

  Risks

  High oil prices, weaker consumption, EV substitution, and ETF outflows may continue to pressure PGMs.

Key data

• Report date2026-07-16The cover shows Date 16 July 2026.
• Dollar forecastFed trade-weighted broad dollar index about -3.7% by year-endThe report does not follow recent dollar strength and believes the dollar has room to weaken moderately.
• Copper price forecastAbout $13,000/t to $13,600/tThe report expects copper prices to rise from about $13,000/t in 2026 Q3 to about $13,600/t in Q4.
• Aluminum price forecastAbout $3,300/t in 2026 Q4, trending toward about $3,000/t in 2027Faster-than-expected recovery at Gulf smelters restores supply, with the 2026 deficit estimate narrowing from more than 2 million tons to less than 1 million tons.
• Iron ore forecastAbout $98/t in 2026 Q3, about $100/t in Q4, and about $103/t for the full yearThe high end of the cost curve above $100/t supports the downside, but supply pressure rises in H2.
• Key crude oil variableBrent about $85/bbl; potential 2027 surplus about +4 mb/dIn the short term it is affected by the Strait of Hormuz, inventory releases, and refinery utilization dislocations; after disruptions are repaired, surplus risk rises.
• PGM auto demandAuto PGM demand may decline by 455 koz versus 2025Global catalyst vehicle sales may decline 4.6%, while China catalyst vehicle sales may fall 21%.
• Russian palladium supplyRussia's primary palladium supply may decline by 265 koz in 2026, close to 10%Norilsk Nickel cited operational and sanctions pressure, and the report expects some production rebound in 2027.

Impact & implications

In terms of investment implications, the report supports differentiated positioning within commodities: precious metals and copper are supported by structural factors and are worth watching for a year-end rebound; aluminum and iron ore require caution over recovering supply and weak Chinese demand; crude oil still has short-term support from geopolitics and refined product tightness, but if transport and refinery disruptions normalize, excess supply in 2027 will weigh on the medium-term oil price narrative.

Risks

• Geopolitical volatility may continue to expand, including the Middle East, US-Iran, Russia-Ukraine, and US-China strategic competition.
• If the dollar continues to strengthen, it will pressure dollar-denominated commodities and hit both precious and industrial metals.
• If the Fed turns more hawkish than expected, rising real rates may continue to drag on gold and silver.
• US copper tariff policy carries multiple-path uncertainty and may trigger dislocations among COMEX, LME, and trade-flow pricing.
• If Gulf aluminum capacity recovers faster than expected, the rebound potential for aluminum prices may be limited.
• Weak Chinese steel demand, elevated port inventories, and the Simandou supply ramp-up may worsen iron ore surplus.
• If the normalization pace of the Strait of Hormuz, SPR releases, refinery utilization, and crack spreads differs from assumptions, the oil price path may deviate significantly.
• Declining vehicle sales and EV substitution may weaken PGM demand, especially affecting platinum and palladium.

What to watch

• US copper tariff decisions and implementation path, including three scenarios: phased tariffs, immediate tariffs, or no tariffs.
• Whether the dollar index, G10 rate ranking, and Fed repricing continue to support the dollar.
• Gold ETF flows, speculative futures positioning, and reserve managers' willingness to allocate to gold.
• Inbound and outbound oil tanker flows through the Strait of Hormuz, global refinery utilization, crack spreads, and changes in Chinese inventories.
• The pace of Gulf aluminum smelter restarts, especially the recovery of Al Taweelah alumina and potlines.
• Whether China's autumn policy support points to infrastructure or real estate, thereby improving expectations for steel and iron ore demand.
• The Simandou shipment ramp-up and the strength of global seaborne iron ore exports.
• China ICE and hybrid vehicle sales, charging activity, refined product consumption changes, and auto PGM demand.