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.”
-
Investors will reap long-term rewards from UK equitiesOpinion Nick Train, portfolio manager, Finsbury Growth & Income Trust, highlights three UK equities where he’d put his money
-
The graphene revolution is progressing slowly but surelyEnthusiasts thought the discovery that graphene, a form of carbon, could be extracted from graphite would change the world. They might've been early, not wrong.
-
'Investors will reap long-term rewards from being bullish on UK equities'
Opinion Nick Train, portfolio manager, Finsbury Growth & Income Trust, highlights three UK equities where he’d put his money
-
The graphene revolution is progressing slowly but surely – how to invest
Enthusiasts thought the discovery that graphene, a form of carbon, could be extracted from graphite would change the world. They might've been early, not wrong.
-
A strong year for dividend hero Murray International – can it continue its winning streak?Murray International has been the best-performing global equity trust over the past 12 months, says Max King
-
The shape of yields to comeCentral banks are likely to buy up short-term bonds to keep debt costs down for governments
-
The sad decline of investment clubs – and what comes nextOpinion Financial regulation and rising costs are killing off investment clubs that once used to be an enjoyable hobby, says David Prosser
-
How to profit from the UK leisure sector in 2026The UK leisure sector had a straitened few years but now have cash in the bank and are ready to splurge. The sector is best placed to profit
-
Who won the streaming wars?The battle of the TV and film streaming giants for dominance looks to be entering a final phase. The likely winner may surprise you, says Simon Wilson
-
'Investors should expect a good year for equities'Opinion The economy is positive, and investors are still cautious, says Max King
