Everyone is talking about a commodities supercycle, says Ashutosh Pandey in Deutsche Welle. Google Trends reports that searches for the term have hit the highest level in over a decade. Copper prices have soared by 75% over the past year. The red metal, dubbed “Doctor Copper” because of its “uncanny ability to predict” economic growth, is leading the charge.
Iron ore prices are up by more than 80% over the past year; aluminium has gained a third. Brent crude oil has jumped by 30% in 2021. Corn (maize) futures are up by 47% over the past 12 months, says Steve Goldstein on MarketWatch. The United Nations reports that food prices have reached their highest level since 2014. We could be in the early stages of an “upward price cycle of commodities... outlasting the typical economic cycle”. The last one ran from the late 1990s to 2008 and was driven by the growth of the Chinese middle class.
A return to normal?
Some analysts are sceptical that we are heading for a repeat. Commodity supercycles are rare, writes Joe Wallace in The Wall Street Journal. They are usually propelled by the rapid industrialisation and urbanisation of a big economy, as happened recently in China, or in post-war Europe and Japan. That creates huge surges in demand for “raw materials that existing supply struggles to meet”, driving prices higher “for years, even decades”. A strong global recovery this year will certainly bring a jump in demand for commodities, but that’s not the start of a massive new trend. It is just things returning to normal after the pandemic.
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
Instead of the late 1990s, a more apt parallel is the period after the global financial crisis, says James O’Rourke of Capital Economics. Then, as now, a credit-fuelled boom in Chinese infrastructure spending powered metals higher, but it didn’t last and prices fell back for most of the following decade. While industrial metals prices are likely to remain buoyant during the first half of this year, we think they will slide in the second half, says O’Rourke.
Where to look now
Talk of coming inflation and a commodity supercycle still looks “premature”, says Jumana Saleheen in the Financial Times. We are arguably only just coming off the back of the last one and few analysts are bullish about the long-term outlook for oil. If anything sparks a new supercycle it will be the green-energy transition, which will require vast investments in new electricity generation and charging infrastructure. On current projections there will be a 20% supply gap in “copper and battery grade nickel” come 2030.
It is in the industrial-metals markets for the likes of “copper, nickel, lithium and cobalt” where the “secular bull market hypothesis is most credible” agrees Eoin Treacy of Fuller Treacy Money. The rise of the electric-vehicle and new battery technology will drive a huge surge in demand for these commodities, the likes of which only comes along “once in a couple of decades… I am very bullish on industrial commodities overall and copper in particular.”
-
Landlords forecast to exit BTL market in droves – has the exodus started?Smaller landlords are selling up in their tens of thousands, according to brokers, findings echoed by higher capital gains tax receipts on property. Is the era of the amateur landlord over?
-
Klarna IPO: how did the Swedish fintech perform on debut?Klarna’s shares made a fast start following the BNPL company’s New York debut, but momentum waned later on. Should you invest in Klarna shares?
-
'Where to find the world’s hidden gems offering durable growth and value'Opinion Joe Bauernfreund, chief executive officer and chief investment officer, AVI Global Trust, highlights three businesses where he'd put his money
-
What are wealth taxes and would they work in Britain?The Treasury is short of cash and mulling over how it can get its hands on more money to plug the gap. Could wealth taxes do the trick?
-
UK bank stocks are no bargain – here's a safer alternativeOpinion Britain's banking sector faces severe political risks. Switch into this global financials trust instead, says Max King
-
Gold mining stocks outperform gold – can it last?Opinion Gold miners are shining brighter than the yellow metal for the first time in this cycle. Enjoy the ride while it lasts, says Cris Sholto Heaton
-
The AI barons call time on the bubbleOpinion OpenAI's Sam Altman and other tech giants are warning that the AI boom is reaching dangerous territory. They may end up as the authors of their own demise
-
Three small companies with big potentialOpinion Nish Patel, portfolio manager of The Global Smaller Companies Trust, picks three small companies where he'd put his money
-
Automatic Data Processing is making big profits from organising offices – should you invest?Automatic Data Processing has established itself as a one-stop shop for managing the workplace. Is it a sound long-term investment?
-
Crypto mogul Do Kwon pleads guilty to fraudSouth Korean entrepreneur Do Kwon, who used to call critics cockroaches, faces a long spell in jail after pleading guilty to fraud relating to the collapse of two digital coins
