Global Commodities: It’s Simple Math

Hello, and welcome to another episode of At Any Rate. I'm your host, Natasha Kanu, and I head JPMorgan Global Commodities Research. With two months of conflict in the middle east behind us, certainty across commodity markets remains scarce.

One point, however, is becoming increasingly clear. The supply shock is spreading. Demand rationing and outright shortages have already emerged across frontier economies in Southeast Asia, Africa, and South America.

Meanwhile, the pre-war buffers that initially insulated other regions are being depleted at a rapid pace. As inventories and strategic reserves approach operational minimums, markets may be forced to rebalance through demand destruction, driven either by higher prices or by government policy. The pressure is most acute in oil, where inventory drills have accelerated in recent weeks.

Metals are also coming into sharper focus. Aluminum, copper, nickel, for example, have drawn particular attention amid smelter shutdowns and rising sulfur prices. Although commodity markets are highly nuanced, understanding the magnitude of the core issues is a matter of simple arithmetics.

Today, I will break down this mess with Greg Shearer, who heads our Basin Precious Metals. Greg, hello, and thank you so much for joining me this week. Thanks, Natasha.

Great to be here. So Greg, you just came back from Santiago, Chile. There's a very big copper conference that you attended there.

The questions that we're hearing the most in New York is that, OK, all this is happening in the oil markets. We have been averaging $100 oil prices for March and April and, you know, very high elevated prices going into May. At the same time, looking at the rest of the complex and especially the focuses on industrial metals because they're so sensitive to the global economy, we're not seeing much movement there.

So we're all stuck at very, very high levels. So first of all, you know, what are you hearing from the industry? How can you how can you explain this dynamics?

Yeah, sure. I think maybe I'll start with the easiest ones, which are aluminum and nickel, and then I'll get to the copper, which is, you know, still I think there's there's two or multiple dynamics at play in copper. You know, aluminum, as we've been talking about, is first in order impact on supply.

And I think we've kind of stalled here at around $3,500, $3,600. Our view is still quite bullish from here, thinking prices could move towards $4,000. I think the next fundamental catalyst that the market's really watching here is inventory draws from China.

China, we see the price differentials in incentivizing additional exports from China and disincentivizing raw material, primary aluminum imports into China. And so that is stressing China's domestic balance from both sides. So that's where all the focus is.

We did see a slight draw, about a 33 KT draw this week. And we do think there's more that is likely to follow. And from our perspective, that then begins to show the scope and scale of this supply hole that the aluminum market is facing.

And we do think we'll restoke a bit more bullish pressure here before we're worried about demand destruction. And we'll have almost a 2 million ton deficit, even after writing down our demand on aluminum. Nickel, it's very simple.

Nickel is a cost curve commodity. And what I mean by that, unlike other metals, for the last few years, we've been trading at the upper ends of the cost curve. Well, we've gone through dramatic cost escalation in nickel, a combination of a change in Indonesian nickel or benchmarking policy, combined with almost doubling in the prices of sulfur inputs into a specific type of nickel production called high pressure acid leaching, or HPAL, has basically driven costs of a pretty decent chunk of supply.

At the moment, it's around 12% of global supply. And it's a big growth opportunity for the industry to increase from pre-conflict something around what we think about $9,000 per metric ton to $9,500, so pretty cheap, to now sitting at $19,000 per metric ton. And what that's really done is because you've just been sitting on this cost floor, that cost escalation gets priced in directly.

And as we go forward, we're still facing a pretty acute supply issue on the sulfur side that does impact that roughly 10% of production. So nickel is definitely one where we're seeing the supply chain really begin to fray. Copper is the interesting one because it also is tied in with sulfur.

But to some degree, all the feedback we heard in Chile was for sulfur to really become an issue, for instance, in the Democratic Republic of Congo, it's still going to take multiple months because you actually do have still pretty large multiple months of sulfur inventory coverage. What's really been driving and I think has been pretty resilient equity sentiment and broader risk sentiment combined with very strong, and I would even say admittedly resilient Chinese buying, even as prices have begun to recover in copper through the month of April. We're still sitting here and seeing China continue to destock the import arbitrage, which when we were at these levels back in January and February was well closed, is still to some degree very resilient.

And from that standpoint, we do see China really kind of supporting this market up here. And to some degree, I think that is reflective of both a need to catch up and pretty decent momentum on Chinese demand, as well as scrap tightness. We've been hearing reports of relatively very tight scrap markets that are necessitating greater cathode demand.

So I'd say in some it's a bit idiosyncratic, but what we're seeing is that for aluminum and nickel, the supply chains are fraying already. For copper, we're seeing a different side of the market, Chinese demand really, really keeping us up here at the moment. If I switch back to you, Natasha, the questions coming in, you know, to me from the oil side is really trying to wrap our head around the accounting here, right?

This is a market that needs to clear. So what do you think in terms of the accounting of this supply shock? How do you see it going forward from here in your current tracking?

Yes, Greg. Well, you know, all the physical commodities, yes, the markets are pretty much forced to be in equilibrium, as you absolutely correctly pointed out, that the market has to clear. So our markets have a couple levers, yes, in oil in particular, so just because in the case of metals, yes, as long as you have a garage and a tarp, yes, it could act as a storage facility in oil and gas and energy.

It's not that easy. Yes, it's, you know, significantly higher requirements for that side. But in general, it's, you know, the market needs to clear.

So couple levers. Yes, when you have a big disruption, the first lever that is being engaged is the spare capacity. So far, what we're observing on our side is that we're missing almost in time, keeping the numbers around about 14 million barrels per day of supply.

That's about 12% of the global market is gone. Yes. But what is interesting is that the spare capacity failed to emerge, notably because of the most of the world's spare capacity is concentrated in the UAE and Saudi Arabia.

And they were both countries were effectively cut off from the global oil markets, stripping the industry of its traditional shock absorbers. So with spare capacity constraint, the second lever, which is the inventory draws, was activated almost immediately. And so what we're acknowledging, Greg, is that, you know, similarly, you know, the issues you're having on your side is that some inventories are visible and we can see them and some inventories are not.

What we can account for is that massive inventory draw of 4 million barrels per day in March and an extraordinary 7.1 in April. Product inventories like gasoline, diesel, jet fuel, we see some majority of them. We don't.

We assume that, you know, probably the inventory draws was substantially higher than what we can observe. Demand buckled as well, at least, you know, what we're observing on our side is global demand fell on average by about 2.8 million barrels per day in March. Very, very large, 4.3 declined so far in April.

And something to keep in mind just for benchmarking at the peak of the global financial crisis, January 2009, demand, the impact on demand was about 2.5 million barrels per day. So what we're seeing right now, 4.3, it's really, really, really large. What is also interesting, Greg, is that demand actually disappeared at prices which were substantially below what you would have assumed to see this scale of demand destruction and especially the speed, how fast it happened.

And so because of that, we're actually very careful. We don't call it demand destruction. We call it demand loss.

And what we believe is that it's just simple lack of availability of the physical oil. Yes, the cargoes just stopped arriving in Southeast Asia as they stopped arriving. The last cargo actually arrived anywhere in the world.

The last cargoes that left the Persian Gulf on February 28th arrived on April 20th. So we're missing those volumes. And so hence, it's not demand destruction.

It's just demand loss. But again, looking at the numbers and how we're balancing the market, you have minus 14, you're offsetting that with 7 million barrels per day of oil in inventories. Let's add an additional million on the product side.

And then you're missing about 4.3 million barrels per day of demand. The residual is still about 2 million barrels per day. That is not accounted for.

But as we said, the markets must clear. They must be in equilibrium. What that means, it's either demand destruction is bigger than what we're observing at the moment or the inventories are growing much faster.

That's what we're seeing is we feel comfortable saying, why don't we just split that difference and one on the demand side, the other on the supply side. But overall, the numbers are really large. The numbers are also showing is that going into May, the situation will get worse.

And so the demand destruction has to become bigger. The emerging markets cannot account for that. They cannot help with that because at this point, they almost stepped out.

What that means is that Europe and the United States will need to start participating in demand destruction. However, those are the two economies that are going to bid up the prices, yes. So this, you know, for us to see another like in demand destruction, especially in the United States and Europe, we need to see higher prices, especially higher product prices like gasoline, jet fuel and distillates.

And that's what we expect to take place in May. So to sum it up, substantial demand losses in oil, a very big inventory growth as well, surprisingly demand strengths in China, especially in the case of copper. So Greg, thank you so much for joining me today.

To our listeners, thank you for tuning into the commodities edition of JP Morgan's At Any Rate podcast. We look forward to continuing the conversation next week. This communication is provided for information purposes only.

Please refer to JP Morgan research reports related to its content for more information, including important disclosures. 2026, JP Morgan Chase & Company, all rights reserved. This episode was recorded on May 1st, 2026. For more information, please visit www.jpmorgan.com.