We may be at the start of a new commodities supercycle

For the past ten years raw materials prices have languished in a bear market. But we could be about to see a new commodities supercycle that could rival those of the 1970s and 2000s.

Are commodities heading back to the 1970s? For the past ten years raw materials such as oil, industrial metals and foodstuffs have languished in a bear market, says Andrew Bary in Barron’s. Yet the Bloomberg Commodity index jumped by 10% during the final quarter of 2020 and analysts at Goldman Sachs think there could be much more to come. They reckon we are heading for “a much longer structural bull market” that looks poised to “rival” the commodity supercycles of the 1970s and 2000s. The previous decade of disappointment has led to “structural underinvestment” in new mines and energy capacity. That could trigger big price spikes in the decade ahead.

More than a Reddit rally

The S&P GSCI commodity index plunged by more than 60% between early 2011 and last April, but it has since soared by 65%. Commodities are back in fashion. Anglo-Australian mining giant BHP recently surpassed Unilever to become the most valuable company on the FTSE 100, says Emily Gosden in The Times. The shares have “more than doubled” since last March, thanks to rallies in copper and iron ore, with the latter hitting its highest price in almost ten years last month due to strong Chinese demand.

First GameStop, now silver. The metal, which is used in industry as well as to store wealth, recently made headlines as the latest target of organised retail investors, says James O’Rourke of Capital Economics. Silver rallied above $29 an ounce at the start of the month before falling back. The metal was doing perfectly well without any assistance from Reddit’s hordes: it was one of last year’s top performers, gaining 50% thanks to strong industrial demand and its role as a (highly volatile) inflation hedge.

Keep a close eye on copper

The new bull market’s standout champion, however, will be copper, says Eoin Treacy on fullertreacymoney.com. The post-millennium bull market was driven by oil and steel; the hallmark of this one will be the drive towards greener energy. Vehicle electrification will bring “massive investments” in new electricity production and charging capacity, and will require correspondingly vast amounts of the rust-coloured metal for all the wiring. Copper will also get a boost from President Biden, says Amrith Ramkumar in The Wall Street Journal. He wants to encourage a quicker shift over to electric vehicles. Yet a structural undersupply of the metal has been exacerbated by Covid-19, which has shut down mines in key producers such as Chile. The shortage will only become more prominent when economies reopen later this year. Analysts at Jefferies warn that there is a “real risk of genuine shortages” in some of the key metals markets. 

From a “vaccine-led recovery” to a weakening US dollar (see page 5), everything looks set for 2021 to deliver a roaring commodities bull market, says Ole Hansen of Saxo Bank. Commodity supercycles are rare: there have been just six in the last 227 years. The evidence is mounting that we are now at “the beginning of the seventh”. 

Recommended

Copper has hit a ten-year high, but this could just be the start of a huge bull market
Industrial metals

Copper has hit a ten-year high, but this could just be the start of a huge bull market

The price of copper is at its highest for ten years. But supply constraints and a massive rise in demand mean it’s not going to stop there, says Domin…
5 May 2021
The charts that matter: copper hits a ten-year high
Global Economy

The charts that matter: copper hits a ten-year high

The price of copper has surged to its highest since the summer of 2011. Here’s what happened to the other charts that matter most to the global econom…
1 May 2021
Copper price’s red-hot run as it heads for a decade-long high
Industrial metals

Copper price’s red-hot run as it heads for a decade-long high

The copper price has risen by 26% so far this year and is at its highest level in almost ten years.
30 Apr 2021
The charts that matter: another big bitcoin crash
Global Economy

The charts that matter: another big bitcoin crash

Bitcoin suffered another of its big corrections this week. Here's how that's affected the charts that matter most to the global economy.
24 Apr 2021

Most Popular

What is hyperinflation and could it happen here?
Inflation

What is hyperinflation and could it happen here?

The Bank of England has been accused of the kind of money-printing that could lead to Zimbabwe-style hyperinflation. But that's very unlikely to happe…
4 May 2021
Copper has hit a ten-year high, but this could just be the start of a huge bull market
Industrial metals

Copper has hit a ten-year high, but this could just be the start of a huge bull market

The price of copper is at its highest for ten years. But supply constraints and a massive rise in demand mean it’s not going to stop there, says Domin…
5 May 2021
Micro-cap stocks: how to get huge returns from tiny firms
Small cap stocks

Micro-cap stocks: how to get huge returns from tiny firms

Micro-cap stocks are often overlooked, but the British market has plenty of them and their potential is massive. Max King picks the best two investmen…
3 May 2021