Expect a supercycle in industrial metals as demand outstrips supply

With copper prices up by 75% over the past year, Iron ore prices up by more than 80% and aluminium gaining a third, we could be at the start of a major upward trend for industrial metals prices.

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. 

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.”

Recommended

The case for nickel – a crucial metal in the Green Energy Revolution
Industrial metals

The case for nickel – a crucial metal in the Green Energy Revolution

Nickel’s use in batteries for electric vehicles makes it a vital metal for the 21st century. Dominic Frisby investigates how to invest.
5 Aug 2021
What Joe Biden's bipartisan infrastructure deal means for cryptocurrency investors
Bitcoin & crypto

What Joe Biden's bipartisan infrastructure deal means for cryptocurrency investors

The US’s $1trn bipartisan infrastructure agreement contains provisions for raising taxes on cryptocurrency investments. Saloni Sardana looks into the …
4 Aug 2021
Bitcoin miners are cleaning up their act, using green energy to drive higher profits
Bitcoin & crypto

Bitcoin miners are cleaning up their act, using green energy to drive higher profits

Bitcoin has been criticised for its vast energy consumption in its pursuit of profit. But that same desire for profit is powering a green energy revol…
4 Aug 2021
Working from home? Make sure you claim everything you can
Tax

Working from home? Make sure you claim everything you can

People working from home can receive up to £140 a year in tax relief.
4 Aug 2021

Most Popular

Why the UK's 2.5% inflation is a big deal
Inflation

Why the UK's 2.5% inflation is a big deal

After years of inflation being a financial-assets problem, it is now an “ordinary things” problem too, says Merryn Somerset Webb. But central banks st…
16 Jul 2021
The MoneyWeek Podcast: Asia, financial repression and the nature of capitalism
Economy

The MoneyWeek Podcast: Asia, financial repression and the nature of capitalism

Russell Napier talks to Merryn about financial repression – or "stealing money from old people slowly" – plus how Asian capitalism is taking over in t…
16 Jul 2021
Three companies that are reaping the rewards of investment
Share tips

Three companies that are reaping the rewards of investment

Professional investor Edward Wielechowski of the Odyssean Investment Trust highlights three stocks that have have invested well – and are able to deal…
19 Jul 2021