A strengthening El Niño event in the Pacific could trigger a multi-commodity price shock, according to Barclays analyst Craig Rye, who identifies the largest immediate risks in agriculture before transmission spreads to industrial metals and energy markets.
The analysis highlights weather-sensitive crops such as palm oil, coconut oil, rubber, robusta coffee and rice as the first wave of exposure, with projected price increases ranging from 10% to 40% over the next 18 months under a scenario where El Niño intensifies. The broader transmission mechanism links agricultural drought to reduced mining output and weaker hydropower, potentially lifting copper and aluminium prices while boosting demand for thermal coal.
NOAA and the World Meteorological Organization have increased the probability of a very strong El Niño during the Northern Hemisphere autumn and winter, with a 69% chance the event could exceed any recorded since 1950 on its relative index. Multi-model forecasts cited by Rye indicate the El Niño index could peak near 3.2 degrees Celsius between late 2026 and early 2027, roughly 15% stronger than the Super El Niño of 2015-2016. The analysis cautions, however, that intensity alone does not guarantee uniform disruption across regions, as the location and timing of rainfall, local inventories and government responses will determine the actual impact.
Agricultural markets face the most immediate threat, with palm oil and coconut oil potentially rising 30-40%, robusta coffee 20-30% and rice 10-20% in Barclays’ scenario. Palm oil’s role in consumer products, from food to cosmetics and biofuels, amplifies the broader economic impact, while rice’s political sensitivity could prompt export restrictions or subsidies, tightening international supplies further. Crop merchants and processors such as Bunge and Archer Daniels Midland may benefit from increased trading activity and price dislocations, though higher crop prices do not automatically translate into higher profits.
The industrial transmission of the weather shock extends beyond agriculture. Reduced rainfall in mining regions and weaker hydropower generation could constrain aluminium and copper output, while utilities may turn to thermal coal to compensate for lost hydroelectric power. Barclays estimates aluminium and copper could rise as much as 20%, with thermal coal gaining 20-40% over the same period. Aluminium smelters, which require significant electricity, could see margins squeezed by higher power costs, while copper faces structural supply constraints even before an El Niño disruption.
Potential beneficiaries of a bullish scenario include aluminium producers Norsk Hydro, South32 and Rio Tinto, copper miners Freeport McMoRan, Hudbay Minerals, First Quantum Minerals and Southern Copper, and energy companies exposed to thermal coal markets. The analysis notes that the cumulative effect of agricultural shortages, hydropower constraints and energy substitution could complicate inflation management for central banks, as food and industrial costs rise simultaneously.
