A Coming Supercycle for Commodities
A Coming Supercycle for Commodities
Prices of commodities are surging despite the fact that economies, many of them still in the grip of lockdowns, are still far from full recovery from the pandemic.
Jefferies’ Chris Wood reports that the Bloomberg Industrial Metals Index has risen nearly 10 per cent so far this year – up 62 per cent from its 2020 low – with a handful of materials having risen spectacularly. Platinum, expected to be a prime beneficiary of the renewables energy boom, is up 115 per cent from its low last year. Oil, the biggest commodity in international trade, is benefitting from both contracting supply (US production has now fallen by 2 million barrels a day to 11 million) and improving demand (Chinese consumption hit 14.7 barrels/day by end-September).
Despite all the talk about the end of fossil fuels, global demand for oil has now recovered to about 94/95 million barrels a day, only 5/6 million b/d below the all-time peak of 100 million recorded in 2019.
“That gap is almost entirely explained by a decline in jet fuel demand, the continuing consequence both of countries’ closing their borders and/or imposing over-the-top quarantines on returning residents.” The oil price can easily surprise on the upside – Chris says he anticipates perhaps $100 a barrel – “if the health fascists ever allow the world to reopen again.”
The same applies to copper. It won’t be easy to boost supply. There is a lack of big new projects coming on stream. Another positive is that “the now-fashionable activity for generating electricity from ‘renewable’ sources is also very copper intensive.” Renewable energy systems use four to 12 times more copper than traditional ones. “It is entirely feasible that copper replicates, if not improves upon, the six-fold increase in prices it managed in the last copper bull market.”
In “soft” commodities agricultural prices have been soaring. Since the start of the century consumption growth of foodstuffs has escalated driven by wealthier populations in China and other emerging economies. Farmers raising cattle, hogs and poultry are being squeezed by the highest corn and soybean prices in seven years.
Investment banks such as Goldman Sachs and JP Morgan say we are in the early foothills of a Himalayan supercycle for commodities.
A Coming Supercycle for Commodities taken from our ‘On Target Newsletter’ issue no 264
