The strongest El Niño in history approaching? Barclays: Palm oil, rubber, and coffee may rise 30%-40% within 18 months

An extremely rare and intense El Niño is forming, putting the commodity markets at risk of a new wave of supply shocks.

On August 30, Craig Rye, a sustainable investment research analyst at Barclays, warned in his latest report that the tropical Pacific El Niño index could peak at around 3.2°C between late 2026 and early 2027—about 15% stronger than the record-breaking 2015-16 El Niño. This would have a significant impact on global agricultural, energy, and industrial commodity markets.

In the agricultural commodities sector, Rye expects palm oil, coconut oil, and rubber prices could rise by 30% to 40% over the next 18 months, Robusta coffee could see gains of 20% to 30%, and rice prices might increase by 10% to 20%. This supply shock will then spill over into industrial metals, with aluminum and copper potentially rising as much as 20% in 18 months, while thermal coal could surge by up to 20% to 40%.

This warning is not an isolated signal. The commodity market as a whole is tightening—since the end of June, the Quantix Commodity Index Total Return has surged more than 22.5% to a record high, tracking 24 US dollar-denominated futures contracts across energy, agriculture, livestock, industrial metals, and precious metals. Recently, former Goldman Sachs senior commodity strategist Jeff Currie stated bluntly: “Physical world scarcity is making a comeback; the illusion of plenty is probably over.”

El Niño Intensity May Set a Record, Agriculture to be Hit First

In his report, Rye cites multi-model forecasts from the International Research Institute for Climate and Society, indicating that this El Niño could peak at around 3.2°C between late 2026 and early 2027.

If the forecast holds true, its intensity will exceed the strongest El Niño on record (2015-16) by around 15%, making it the most powerful El Niño event ever recorded.

Rye points out that as confidence in a historic El Niño rises, the probability of major upheavals in agricultural, energy, and industrial commodities increases dramatically. Historically, El Niño events are often accompanied by widespread droughts, floods, and extreme temperatures, with particularly severe impacts on major agricultural regions such as Southeast Asia and Central America.

Among agricultural commodities, Rye believes the most immediate risks are to varieties highly sensitive to weather. The main production regions for palm oil, coconut oil, and rubber are concentrated in Southeast Asia, making them highly vulnerable to drought and abnormal rainfall. He expects price increases of 30% to 40% over the next 18 months. Robusta coffee, mainly produced in Vietnam and other Southeast Asian countries, is expected to rise by 20% to 30%. For rice, drought threatens crops and water resources across Southeast Asia and parts of Central America, with prices possibly rising by 10% to 20%.

Supply Shock Spreads to Industrial Metals: Copper, Aluminum, and Coal All in Range

Rye warns that the supply shocks in agriculture will not be contained, but will further transmit to industrial commodities. He predicts aluminum and copper could rise as much as 20% in the next 18 months, while thermal coal may surge 20% to 40%.

The transmission path is clear: droughts triggered by El Niño will reduce hydropower generation, increase electricity demand, and push up electricity prices, thereby raising aluminum smelting costs; meanwhile, extreme weather will directly disrupt mining operations and port logistics, tightening supplies of copper and other metals.

Rye notes that mine shutdowns, reductions in hydropower, and structural changes in electricity demand will together magnify the impact of drought and extreme weather on industrial metals markets.

This logic is already being borne out in the current market. Reports indicate that flooding in Chile has caused mine shutdowns, while drought in Papua New Guinea has hampered Ok Tedi River shipping, affecting copper shipments. LME copper prices have risen for nine straight weeks, approaching historic highs.

Multiple Factors Combined: The Supply Shock Is Not Just a Climate Event

It’s worth noting that the current tightening of global commodity markets is not driven by El Niño alone, but by a combination of structural factors.

Rye’s report points out that adverse weather, years of insufficient capital investment, and continued declines in inventories are converging to form a new supply shock. This aligns closely with UBS’s recent recommendation for clients to “position for a commodity upcycle.”

From a broader macro perspective, the Quantix Commodity Index has surged over 22.5% since late June, reaching record highs across energy, agriculture, livestock, industrial metals, and precious metals, indicating this rally is no longer limited to a single category but is tightening across the board.

Jeff Currie's assessment is concise and direct: "The illusion of abundance is most likely a thing of the past."