Energy prices continue to soar. Brent crude oil was trading above $82 a barrel this week, a three-year high, after the Opec+ group of producers said it would not add additional production in response to the price spike. US WTI futures are at a seven-year high. On Tuesday Dutch wholesale gas prices went above €100 per megawatt hour for the first time. Prices have more than doubled since the start of September.
There was much talk earlier this year of a coming supercycle: a prolonged period of rising commodity prices owing to structurally higher demand. Yet while energy markets boom, other commodities have come back down to earth, says William Watts on MarketWatch. US lumber futures gained 600% between April 2020 and May 2021 but are now down by 40% since the start of the year. Copper rocketed to an all-time high in May this year, but has gone nowhere in recent months. Still, in aggregate, commodities are up: the S&P GSCI index of 24 major raw materials has risen by 40% in 2021.
“Most elements of the supercycle story remain unchanged,” says CME Group on Benzinga.com. The recovery from the pandemic, combined with lavish fiscal and monetary stimulus, should continue to power prices higher. Yet the prospect of coming interest rate hikes and signs that China’s appetite for raw materials is ebbing are sowing doubt. “The jury is still out.”
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Chaos, not a bull market
This year’s price movements look less like a supercycle than simple “chaos”, says The Economist. Stop-start lockdowns and geopolitical tensions are “interacting in unpredictable ways”. For example, “iron ore has cratered” on weaker Chinese steel demand. Yet coking coal, which is also used in steel production, is still “glowing hot” because of a lockdown in Mongolia, a major producer.
The energy transition is a key element of the case for a new supercycle. Plenty of copper and rare earth metals will be needed to build all the fuel cells and green power grids of the future, Steven Spencer of Spencer Associates tells Lexology.com. But more efficient use of raw materials can bring down demand over time. Higher prices also encourage users to switch to cheaper alternatives: witness “the use of aluminium power cables as a substitute for copper when the price of copper is too high”.
More efficient use of resources, combined with new exploration, means that commodities are a surprisingly poor long-term investment. Deutsche Bank’s Long-Term Asset Return Study notes that commodities have seen negative real returns of -0.8% per year over the last 100 years. Commodities should provide protection if inflation spikes. But think twice before buying them for your grandchildren’s trust fund.
-
Saba Capital and Boaz Weinstein respond to investment trustsAs investment trust managers and industry experts accuse Saba of self-motivated opportunism, the hedge fund responds to specific "misleading claims" and sets out its stall
-
How to find top-quality companies with growing dividendsIan Mortimer, portfolio manager of Guinness Global Equity Income Fund, shares where he would put his money for sustainable and growing dividends
-
Why Wise could be worth a lot more than its share price impliesForeign-exchange transfer service Wise has the potential to become the Amazon of its sector – here's why you should consider buying this stock now
-
Can The Gym Group pump up your portfolio?Gym Group was one of the best UK small-cap stocks in 2024 and will beef up your profits this New Year
-
MoneyWeek's five predictions for investors in 2025MoneyWeek's City columnist gazes into his crystal ball and sees five unexpected events in store for investors in 2025
-
How to invest in battery metalsDespite recent weakness, battery metals that are powering electric vehicles are worth a look
-
How buy-and-build stocks deliver strong returnsBunzl, DCC and Diploma became successful through buy-and-build – rolling up dozens of unglamorous businesses. How does it work and what makes it successful?
-
Singapore Technologies Engineering shows strong growthSingapore Technologies Engineering offers diversification, improving profitability and income
-
Why undersea cables are under threat – and how to protect themUndersea cables power the internet and are vital to modern economies. They are now vulnerable
-
Warren Buffet invests in Domino’s – should you buy?What makes Domino's a compelling investment for Warren Buffet's Berkshire Hathaway, and should you buy the UK-listed takeaway pizza chain?
