Monday, March 1, 2021

Mining boom could herald commodity ‘supercycle’ | Commodities


It is known as a “supercycle” – and there have only been four in the past century. The term defines periods when commodity prices enjoy an extended boom, and this week’s multibillion-dollar windfalls for mining company investors suggest a fifth supercycle is on its way.

Indeed, there are signs it may have already begun. In recent weeks the price of iron ore, which is used to make steel, surged by more than 85% to reach highs not seen in almost 10 years.

The market price for copper, used in electrical wiring, has followed suit by climbing 80% since last March to reach a nine-year high. Meanwhile, nickel is trading close to 17-month highs and cobalt is at close to two-year peaks.

Mark Lewis, the chief sustainability strategist at BNP Paribas Asset Management, told the Guardian last month: “It feels like any market you look at, investors want to buy.”

The next 30 years are “likely to bring a supercycle in investments in clean energy infrastructure, clean transportation and everything else that is required to make the green transition possible”, he said.

The most recent supercycle managed a decade-long run, spurred by China’s demand for natural resources to stoke its infrastructure stimulus plans.

This time a supercycle could be ignited by a rebound in demand after the Covid-19 economic hiatus, and a drop in value of the US dollar, which most commodities use to trade. But it will also be fuelled by the need to invest heavily in green infrastructure to help economies reach their climate goals.

From China’s five-year plan to Europe’s Green Deal and Joe Biden’s economic stimulus plan, policymakers are looking to redistribute economic benefits, help the environment and create versatile and resilient supply chains, according to the US bank Goldman Sachs.

The bank raised the prospect of a long-running bull streak for commodities at the end of last year. It warned that as governments ushered in a new era of policies to help economies recover from the pandemic, the next supercycle could echo the commodities boom in the early 2000s led by the sharp growth of the emerging Bric economies (Brazil, Russia, India and China).

Big infrastructure projects are a tried and tested way to stimulate growth and spur employment. If these projects are green, such as windfarms or electric vehicle charging networks, they can help to tackle the climate crisis too. Both strategies require large amounts of metals including iron ore, copper, cobalt and lithium.

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Daniel Major, an analyst at Swiss bank UBS, said the roll-out of electric cars and shift to cleaner energy were “the key megatrend for commodities” in the years ahead.

A boom in such technologies could also accelerate demand for cobalt, nickel and copper, which are used to help make car batteries, charge cars, and distribute and store electricity.

As mining companies begin to turn away from coal and towards the metals that help to drive a green recovery, more shareholder windfalls may follow.

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