The resource supercycle arrives as the pandemic recedes

Ten years ago, commodity markets were gaining high exuberance in the supercycle as the Glencore commodity trader prepared for a $ 60 billion listing on the London Stock Exchange.

A decade later, a sharp rise in the price of key commodities is spurring China’s “structural bull market” across the sector with high demand, spending on post-pandemic recovery programs and “greening” bets on government spending. ”The global economy.

“Fortunately, if we see a fairly quick resolution [pandemic] The state of India, then in our lives we have not seen such a macroeconomic configuration, ”said Traadura chief economist Saad Rahim, one of the world’s largest independent commodity traders.

“In the last 10 years we have gone from being the only story of raw materials in China to now taking the witness of the rest of the world and becoming true contributors to the demand for the equation.”

Iron ore has been seen over the past week, steel, a necessary ingredient for making palladium, used by carmakers to limit harmful emissions, and wood has set a record. Essential agricultural products, grains, oilseeds, sugar and dairy products have also risen, with corn prices hovering above $ 7 a bushel for the first time in eight years.

At the same time, copper, the world’s most important industrial metal, was first traded at more than $ 10,000 since 2011, while soybeans were the highest in eight years. The S&P GSCI spot index, which tracks 24 commodity price movements, has risen 21 percent this year.

After leaving for most of the last decade, industry specialists have been attracted by investors ’predictions about another supercycle – as long-term high prices outstrip demand for supply -.

The sector has received support from fund managers looking for assets that will benefit as the global economy speeds up after the pandemic, and can also act as a hedge against rising inflation.

“President Biden has now proposed two additional estimated plans above what he has already passed. If one of these happens, you’re overloading it all. This is just the beginning, ”Rahim said.

China’s rapid recovery, which is still the world’s largest consumer of raw materials, and increasingly Europe and the US, where the housing market is growing, have boosted demand. Small inventories and supply chain disruptions associated with Covid have added more fuel to the fire.

“I don’t know if we’ve seen this before,” said Ulf Larsson, CEO of the Swedish pasta and wood company SCA, who announced a 66% increase in net profit for the first quarter on Friday. “We’re in a perfect storm.”

The set of raw materials needed for electric vehicle batteries and electric motors has also been carried away from lithium to rare earths in euphoria.

China’s appetite has pushed prices for lithium carbonate and lithium hydroxide to rise by more than 100% this year, according to Benchmark Mineral Intelligence, after a nearly three-year decline. Neodymium-praseodymium (NdPr) oxide from rare earths, used in electric motors, has risen by nearly 40 percent, as has cobalt, a metal battery.

“You have an EV supercycle and you add a real raw material supercycle on top – it’s a game for miners,” said Simon Moores, CEO of Benchmark Mineral Intelligence.

Products related to gasoline cars are also being collected. The price of palladium, the metal used in catalytic converters to filter exhaust gases, reached a record high of more than $ 3,000 on Friday as Europe and China meet stricter emission standards.

According to analysts at Jefferies, it is likely to outpace the slowdown in sales of internal combustion engine cars.

Oil prices have also been strong, recovering from pre-pandemic levels of 65 barrels since the start of the year. Although demand for limited international travel is still disappointed, it has increased as the economy reopened. Allies like Opec and Russia continue to limit supply, slowly adding barrels back to the market to boost the price.

Goldman Sachs said this week that it expects to see oil prices in the second half of this year at $ 80 a barrel, warning that there could be a large supply deficit this summer, accelerating the spread of vaccines and as people go on vacation, boosting demand further. more than 5 percent worldwide.

Even if the prices that the Opec + group can resume production are too high, some analysts are concerned about the long-term supply forecasts, as the main energy is diverted from fossil fuels.

Christyan Malek, an analyst at JPMorgan, has argued that a serious supply gap could arise in the coming years, with an estimated capital expenditure of approximately $ 600 billion by 2030. it falls short, ”Male said.

How long the commodity rage will last, however, is debatable. “This is a small supercycle,” said Alex Sanfeliu Cargill, head of the world trade team, about the growth of agricultural products. “I don’t think it will last as long as the last one. Supply and demand are reacting faster now. “

Shekar of Olam International, a leading agricultural retailer based in Singapore, said he did not see continued growth in food products. However, it has announced that underlying demand will remain strong for the next six to 12 months as consumers will be able to eat after a year of closures. “That could push prices up more,” he said.

Some question that we are entering supercycles. “We think the rise in prices will continue for a while, but it’s more of a superset than a rise in the business cycle,” said CRU chief economist Jumana Saleheen.