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.
-
Coventry Building Society bids £780m for Co-operative Bank - what could it mean for customers?Coventry Building Society has put in an offer of £780 million to buy Co-operative Bank. When will the potential deal happen and what could it mean for customers?
-
Review: Three magnificent Beachcomber resorts in MauritiusMoneyWeek Travel Ruth Emery explores the Indian Ocean island from Beachcomber resorts Shandrani, Trou aux Biches and Paradis
-
The industry at the heart of global technologyThe semiconductor industry powers key trends such as artificial intelligence, says Rupert Hargreaves
-
Three emerging Asian markets to invest inProfessional investor Chetan Sehgal of Templeton Emerging Markets Investment Trust tells us where he’d put his money
-
What to consider before investing in small-cap indexesSmall-cap index trackers show why your choice of benchmark can make a large difference to long-term returns
-
Why space investments are the way to go for investorsSpace investments will change our world beyond recognition, UK investors should take note
-
Time to tap into Africa’s mobile money boomFavourable demographics have put Africa on the path to growth when it comes to mobile money and digital banking
-
M&S is back in fashion: but how long can this success last?M&S has exceeded expectations in the past few years, but can it keep up the momentum?
-
The end of China’s boomLike the US, China too got fat on fake money. Now, China's doom is not far away.
-
Magic mushrooms — an investment boom or doom?Investing in these promising medical developments might see you embark on the trip of a lifetime.
