Global | Commodities supercycle and sustainability

Summary

One of the strongest price rallies in history for various commodities (e.g. oil, copper, steel) is consolidating in 2021. The speed of the upside movement could make you think that we are at the start of a new commodities supercycle. If we are, it would be quite different from the previous ones.

Key points

• Key points:
• In the short term, the increases are consistent with expectations of economic recovery, resulting from the fiscal and monetary stimuli in both developed and emerging economies.
• In addition, the search for yield to overcome low generalized returns in an environment of excess liquidity also fuels investment in commodities.
• Commodity cycles do not usually last long enough, at least not for all commodities together, to be categorized as a supercycle. In fact, in the very long term (and in real terms) the trend in commodity prices is not upward.
• Perhaps there is a new structural phenomenon, capable of altering, among other things, the supply, demand and price behavior of commodities: the transition to a low-emissions economy.
• Looking ahead, the next long commodity cycle is likely to depend more on technical advances, externalities and regulations than on a global demand-side shock, as was the case with the growth and real convergence of China. Instead of a commodities supercycle, there will be different cycles for different commodities.

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