The Emergence Of A New Commodities Supercycle

You Are Either A Contrarian Or A Victim.

Jan 21, 2024

A commodities supercycle is a long period when prices of base metals and minerals soar and stay high for more than ten years. This happens when the demand for commodities rises due to fast industrialization and urbanization in developing countries, while supply struggles to keep up.

Over the past century, we've seen four major metals supercycles driven by infrastructure growth and economic development. The most recent one, from the early 2000s to around 2014, was powered by China's rapid industrialization. Copper and iron ore prices rose over 300%, and coal prices rose over 200% during this time.

In a recent conversation with Jay Martin, we talked about financial sovereignty, the importance of owning gold, the emergence of a new commodities supercycle and how the best commodities investors have gone from good to great.

Now, we're on the brink of a new supercycle. Decarbonization, electrification, and infrastructure renewal are converging to boost metal demand. Here are some factors supporting the idea of a new commodities supercycle:

1. Decarbonization Policies

Countries worldwide are moving aggressively toward net-zero emissions, shifting from fossil fuels to renewable energy.

This transition requires a substantial amount of metals like copper, nickel, cobalt, and lithium for electric vehicles, wind turbines, solar panels, and grid infrastructure.

Copper demand could surge by over 600% by 2050 in some decarbonization scenarios, creating long-term shortages as new mines take years to come online.

2. Post-Pandemic Infrastructure

Stimulus packages in the US, Europe, and China are dedicated to renewing aging infrastructure. President Biden's infrastructure bill alone involves $550 billion in new spending.

The development of renewable energy systems, EV charging stations, 5G networks, high-speed rail, ports, and bridges will significantly drive metal demand.

3. Supply-Side Constraints

Developing new mines can take well over a decade due to permitting issues and costs. Older mines are depleting rapidly, and top miners' capital expenditures have not kept up with rising metals demand over the past decade.

This lack of investment limits potential supply responses, leading to prolonged shortages. Environmental opposition further complicates the opening of new mines.

4. Urbanization in Emerging Economies

Despite China's recent slowdown, countries like India, Southeast Asia, Latin America, and Africa are rapidly urbanizing and industrializing.

Over the next 20 years, hundreds of millions are expected to migrate to cities in these regions. Urban settings require more metals per user for housing, appliances, autos, rails, and power, boosting overall metal demand.

The Historical Periods of Commodities Supercycles

Over the past century, there have been several significant commodities supercycles, driven by various factors. However, these cycles do not follow a predictable timeline. Here are some key historical periods:

1915-1921: World War I spurred a metals boom due to military production needs and postwar reconstruction in Europe. Prices surged but crashed after the war demand peaked.

1933-1937: The 1930s saw a recovery in prices following the Great Depression, driven by rearmament spending ahead of World War II. Sharp gains were observed in steel, iron ore, coal, and other metals, but the boom ended with a recession in 1938.

1949-1957: The post-World War II economic expansion, fueled by the reconstruction and industrialization of Japan and Europe, led to a commodity supercycle. Prices of aluminum, copper, steel, and energy rose throughout the decade before subsiding.

2003-2011: China's rapid urbanization during this period propelled global metals and minerals demand to unprecedented levels. Iron ore, copper, oil, and coal reached record-high prices before trends reversed after 2011.

Billionaires Who Capitalized on Commodities In Previous Supercycles

Certainly, history reveals instances where smart money, particularly from billionaires, followed the commodities space during previous commodity supercycles:

Andrew Mellon: U.S. Secretary of the Treasury during World War I, Mellon capitalized on the metals boom driven by military needs and European reconstruction.
John D. Rockefeller: Post-Great Depression, Rockefeller made smart moves in commodities, benefiting from rearmament spending and sharp gains in metals.
Aristotle Onassis: Post-World War II, Onassis strategically invested in commodities during the economic expansion fueled by Japan and Europe's reconstruction.

These examples underscore the historical trend of smart money gravitating towards commodities during supercycles, providing valuable insights for contemporary investors.

Commodities Outlook: Riding the Bullish Wave

Market analysts are optimistic about a continued rise in commodity prices throughout 2024. Several factors contribute to this bullish sentiment:

Post-Pandemic Infrastructure Boost: Global governments are heavily investing in infrastructure projects, such as renewable energy systems, EV charging networks, and public transport upgrades. These projects are metal-intensive, driving demand for commodities.
Supply-Chain Constraints: Years of underinvestment in new mines and oil/gas projects have created supply-side limitations. Low inventories struggle to meet demand rebounds, and permitting barriers hinder quick supply activation.
War Fallout Impact: Russia's invasion of Ukraine has led to sanctions limiting Russian oil, gas, and metals supply. This tightens markets, triggering additional stockpiling and localization efforts.
Climate Transition Momentum: Global policies favouring renewable energy and electric mobility adoption are significantly increasing demand for metals like copper, lithium, nickel, and cobalt. However, the lengthy timeline for most projects to come online poses challenges.
Weaker Dollar Outlook: A potential pause in rate hikes by the Fed could lead to a peak in the US dollar, allowing commodity prices to rise. Weather events and geopolitical crises may also cause intermittent spikes.

While metal and energy prices are expected to remain volatile in 2024, structural tailwinds indicate an upward trend. However, gains may moderate after 2025 due to recession risks and new supply entering the market.

Nonetheless, the broader commodities bull run is anticipated to maintain momentum through the latter half of the decade before reaching its peak.

Today, I am attending the Vancouver Resources Investment Conference hosted by Jay Martin. This is a great way for you to learn more about the commodities market and to connect with other investors.

Attending conferences like this offers valuable insights from top experts, updates on the latest trends, and a chance to gain a competitive edge in the commodities market.

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Thank you for reading. I hope you learned something today!

Best,

Ben Mumme