Is the world at the start of a commodities supercycle?

Surging global demand has driven both copper and iron-ore prices to all-time highs.

Nickel smelting
The supply squeeze in copper is the worst it has ever been
(Image credit: © BANNU MAZANDRA/AFP via Getty Images)

Surging global demand for “appliances and electronic goods” during the pandemic has powered a boom in commodity prices, report Emily Gosden and Gurpreet Narwan in The Times. Copper and iron-ore prices have both hit all-time highs. The latter, used to produce steel, has more than doubled since early 2020, breaking through $200 a tonne for the first time ever. Brent crude oil is up by more than 30% so far this year.

A supercycle is a prolonged period of rising prices owing to structurally higher demand. The last one started after China’s accession to the World Trade Organisation in 2001 and lasted until the early 2010s.

Copper is white hot

Copper certainly looks to be heading for “a long bull market”, writes Andrew Bary in Barron’s. Decarbonisation means the world will need unprecedented amounts of copper wiring. An electric vehicle contains four times as much copper as an internal-combustion car.

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Onshore wind turbines likewise need “four times as much copper” per megawatt generated compared with traditional power plants. On the supply side, the “constraints in copper are the worst they have ever been”, says Chris LaFemina of Jefferies. Relatively little new supply is being added and it can take six to eight years to get a new mine up and running.

There are some signs of excess emerging, says Matt Egan for CNN Business. US steel prices have tripled this year to hit a record high: many mills stopped running last year, creating a “huge shortage”. Yet with the prospects for demand for steel unclear, some analysts think things will “end in tears”.

Not all industrial metals are “glowing white hot”, says Andy Home for Reuters. Zinc is up by 9% so far this year; lead 10%. That makes them comparative laggards: copper has more than doubled since its Covid-19 lows last year. Neither zinc nor lead is likely to benefit from the push to go green. Indeed, lead’s exposure to the car market could see it lose out. The two metals are likely to be left behind again, just as they were during the last supercycle.

The jury is still out on whether the commodity bump is the start of a supercycle or just post-pandemic normalisation, says Tom Stevenson in The Daily Telegraph. Fully fledged supercycles are rare: there have been just four in the last 150 years. But when one gets going it can “last for years”. The “green metals” (copper, nickel, aluminium, platinum) certainly have a good shot. Governments are encouraging green energy. One-third of Joe Biden’s “Jobs Plan” will be spent on “transport infrastructure” and electric vehicles. Raw-materials stocks tend to pay handsome dividends that compound over time. A prolonged boom could “make a generation of investors rich”.