Commodities supercycles are decades long periods in which certain commodities experience price appreciation at paces and magnitudes greater than those experienced in other periods of typical up and downswings.
A few instances of commodities supercycles in recent history include the era of 1910s (in which rapid urbanization of the US drove demand for various commodities), 1950s (in which the re-industrialization of Japan and German produced similar effects), and 2000s (in which BRIC nations – especially China – integrating into the global economy drove up commodities prices).
There are whisper in the air that a new commodities supercycle is just around the corner… This time… drove by a new development… related to 1) decarbonization and 2) electronification. Let’s explore both of these themes.
Decarbonization
The world is becoming greener… and we certainly aspire to be so… The root propellants of both of these emergences are the reduction of carbon emission and climate change accords… Take the EU and US for instance… both recently pledged to carbon emission goals. Respectively, US and EU will spend $3 trillion and $1.8 trillion in stimulus packages in response to covid. A chunk of these are aimed at carbon reduction initiatives.
Private sectors are also following suit, with many car manufacturers in EU and US aiming to cease production of oil-fueled vehicles by 2030-2035 and transitioning to the production of Electrical Vehicles…
The impact of such is the increased demand for EVs that will require base metals for components such as bodies and batteries… A world in which many nations would require EV to operate rather than oil-fueled vehicles would require vast amount of EV production… These would drive up demands..
Electronification
The Electronification theme is partially already represented by the Decarbonization theme, in the demand for EV. However, in addition to EV growth, semiconductor chips and electronification of all accessories also drive the demand for metal materials such as copper…
We are at the precipice of a new world… the transition into the next one from our current one could be similar in significance to the one where old economy of rail roads was transformed into the internet and digital age…
In this new world, all are connected to (sky)net. Our shoes, fridge, watches, pens and even water bottles are computerized, have sensors in them, are electronified and are connected to the cloud/computers/datacenters and the internet… The world becomes more in sync than its ever been in the past…
This is a scary new world… but also full of exciting opportunities… Regardless of which you could interpret it… What is less disputable in my opinion that it is probably inevitable… what is more debatable is when this would happen… There is less certainty on this… since connecting accessories to delicate electronic is already a technology available in the present day. But such products are rarely produced because the costs are too high and the economic warrant having sensors in a protein-shake bottle…
But electronfication of all components really take off… semiconductor demand will certainly sky-rocket. Even without the radically electronfication of daily accessories, semiconductors growth still have much run-room considering 50% of the world still do not have access to either the computer/internet… As more regions of the planet becomes modernized, lots of additional participants will be brought into the computerized grid. After taking into account additional human population growth… we are looking at a lot of people/growth for semiconductors demand… This in turn should drive at least copper and silicon wafer prices….
Peripheral Drivers
Super accommodating monetary policies also present breeding conditions for commodities supercycles. The devaluation of fiat currencies, especially that of the US dollar, will have an inflationary effect on commodities prices in the absence of offsetting demand decreases or supply floods (which are currently at least not likely)…
Summing it Up
In all, commodities supercycle is usually experienced because of the surge from demand side… And a huge demand side surge for commodities is usually driven by a transformational period in which the world or at least certain parts of the world remold itself into a new state of existence…
So the question to really ask is… Are we at such a point in history where the world is about to experience transformation in its material existence???
I leave that for you to decide…
