Commodities monthly: Energy surge and second-round effects dominate as metals correct

Precious metals: sharp correction after a year-long rally

The metal sector told the opposite story. After a year-long rally that had pushed several contracts to or near record highs, March delivered a brutal correction. Precious metals took the hardest hit, with gold down 9.7%, silver 19.7%, platinum 17.9% and palladium 18.4%. Yet the scale of the monthly decline needs to be seen in context. On a one-year basis, gold was still up 49.9%, silver 114.9%, platinum 96.6% and palladium 47.6%. This was therefore less a collapse in the longer-term bull narrative than a sharp and painful washout in a heavily owned sector.

The correction likely reflected a combination of profit-taking, deleveraging and temporary disappointment among investors who had expected an energy shock to offer immediate additional support to hard assets. Instead, gold and silver initially traded more like liquidity sources during a period of forced repositioning. A late-month recovery suggested that this phase may be easing, but the sector still ended with one of its weakest monthly performances in years.

Industrial metals: growth fears versus supply stress

Industrial metals fared less dramatically overall, but here too the split between growth concerns and supply concerns was evident. Copper fell 6.6% over the month, reflecting fears that a prolonged energy shock could hurt global industrial demand and weigh on manufacturing activity. Aluminum, by contrast, rose 11.4%, supported by supply disruption concerns and signs of a tighter nearby market. Nickel, zinc and lead all posted losses, reinforcing the message that the industrial metals space was being pulled in two directions: macro growth worries on one side, and supply-side stress on the other.

Second-round effects: biofuels, ethanol, and fibres

Beyond energy and metals, the month also offered early evidence of second-round effects across the broader commodity complex. This is where the story becomes more interesting than a simple ranking of winners and losers. Several commodities linked to fuel substitution, biofuels and petrochemical costs began to respond positively to the surge in energy prices.

Soybean oil rose 10.0% over the month, supported by its biofuel linkage as higher fossil fuel prices improve the relative economics of vegetable-oil-based fuels. Sugar gained 10.4%, with the ethanol channel providing support as higher fuel prices raise incentives to divert cane away from sugar production and towards ethanol. Cotton rose 6.2%, reflecting in part how higher energy and petrochemical input costs can improve the relative competitiveness of natural fibres versus synthetic alternatives.

Fertilizers: rising costs and emerging shortage risk

These moves were important because they showed how the shock was spreading. What began as a disruption to crude and fuel flows is now increasingly morphing into a broader threat to global food production. With exports of ammonia and urea from the Gulf grinding to a halt amid the closure of the Strait of Hormuz, attention has shifted to one of the most critical inputs in modern agriculture: nitrogen fertilizer.

The Middle East plays a pivotal role in global fertilizer markets due to its access to abundant natural gas, the key feedstock in ammonia production. Gulf producers account for roughly half of global urea exports and around a third of ammonia trade, meaning any disruption has immediate and far-reaching consequences.

Nitrogen is not a marginal input but a cornerstone of high-yield agriculture. Crops such as wheat, corn, rice, cotton, canola and sugarcane are all heavily dependent on fertilizer application. When supply becomes uncertain or prices surge, farmers are forced to respond by reducing application rates, switching toward less nitrogen-intensive crops such as soybeans and pulses, or in more extreme cases cutting planted acreage altogether. Each of these adjustments carries negative implications for yields and ultimately food supply. In that sense, the second-round impact is no longer limited to substitution effects and higher input costs - it is increasingly a question of future production risk.

Market structure: backwardation and the carry tailwind

From an investor perspective, another key development lay in the shape of the futures curves. The one-year spread column highlights that backwardation across energy, excluding natural gas, remained exceptionally steep. Brent showed a one-year backwardation of 27.8%, WTI 31.0%, gasoil 41.9%, NY ULSD 35.8% and gasoline 27.3%. That matters because index investors in total return products do not only benefit from rising prompt prices. When the futures curve is backwardated, rolling a long position from a more expensive nearby contract into a cheaper deferred contract can generate a positive roll yield.

This carry component is often overlooked during periods of large spot moves, but in this case it was highly significant. It helps explain why the Bloomberg Commodity Total Return Index rose 10.8% over the month and 31.3% over one year, even as some individual sectors posted deep corrections. In short, the energy rally delivered both price appreciation and an additional structural tailwind through curve shape.

The story was different in precious metals. Gold and silver traded in modest contango, with one-year spreads of around minus 4.3%, broadly in line with normal funding and storage costs. There was no major signal there beyond standard carry conditions. Aluminum, however, stood out with an 8.2% one-year backwardation, reinforcing the impression of relatively tight nearby supply compared with several other industrial metals.

Macro and rates: from inflation scare to growth concerns

Other financial markets spent the month trying to decide whether the energy shock was primarily an inflation event or a growth shock. Initially, the answer appeared to be inflation. Rate-cut expectations faded and markets briefly began to contemplate whether persistent energy-driven price pressure might even force central banks to delay easing or, in an extreme scenario, consider renewed tightening. Treasury yields rose sharply, with the US 10-year yield reaching 4.48% last week and the 2-year yield touching 4.02%.

That tone has since shifted. Supported by lower oil prices, a first glimmer of hopes for de-escalation with Iran, and Powell’s indication that there was little the Fed could realistically do to counter a supply-shock-driven price spike, Treasuries staged a strong recovery. The 10-year note fell back to 4.28% from a March peak of 4.48%, while the 2-year dropped to 3.76% from 4.02%, as traders rebuilt expectations for Fed rate cuts later this year and into 2027. The market, in effect, moved from fearing persistent inflation to concluding that a war-driven commodity spike is more likely to hurt growth than to trigger a conventional monetary tightening response.

For investors, the month highlighted why commodities remain more than a spot-price story. The historic rally in energy dominated returns, but steep backwardation across crude and fuels also delivered a major carry tailwind for passive index exposure. At the same time, the sharp metal correction was a reminder that even structurally supported sectors can suffer violent setbacks when positioning and macro sentiment turn. The next phase will depend on whether the easing in energy prices marks the start of de-escalation, or merely a pause before further supply stress renews inflationary pressure across the broader commodity complex.