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.
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
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.”
-
Should you invest in Trainline?Ticket seller Trainline offers a useful service – and good prospects for investors
-
Investing in a dangerous world: key takeaways from the MoneyWeek SummitIf you couldn’t get a ticket to MoneyWeek’s summit, here’s an overview of what you missed
-
DCC: a top-notch company going cheapDCC has a stellar long-term record and promising prospects. It has been unfairly marked down
-
How investors can use options to navigate a turbulent worldExplainer Options can be a useful solution for investors to protect and grow their wealth in volatile times.
-
Invest in Hilton Foods: a tasty UK food supplierHilton Foods is a keenly priced opportunity in an unglamorous sector
-
HSBC stocks jump – is its cost-cutting plan already paying off?HSBC's reorganisation has left questions unanswered, but otherwise the banking sector is in robust health
-
Lock in an 11% yield with SabreTips Sabre, a best-in-class company is undervalued due to low profits in the motor insurance industry. Should you invest?
-
Byju’s – the startling rise and fallIndia’s educational technology start-up Byju's attracted big-name backers and soared to vertiginous heights during Covid. It has now plummeted. What happened?
