Commodity super cycles: Everything you need to know
Riding the highs and lows of global markets, commodity super cycles shape everything from oil prices to your grocery bill.
Wondering what a commodity super cycle is? Here’s everything you need to know and how you can take advantage with your trades.
What are commodity super cycles?
During an interview in August 2024, Jeff Currie said the commodities markets had entered a super cycle.
Currie, who was the Global Head of Commodities Research at Goldman Sachs for close to three decades, had accurately predicted China’s phenomenal growth at the turn of the millennium and the shale boom in the US in 2010s.
In agreement with Currie, founder of MN Consultancy, Michaël van de Poppe, tweeted,
“The last [two] times we saw these valuations for commodities was 1971 and 2000.” He predicted in September 2024 that commodities and cryptocurrencies were "extremely undervalued” and commodities would “go into a 10-year long bull market.”
Extended periods of sharp rises (“booms”) followed by equally dramatic declines (“busts”) in commodity prices are called super cycles.
No two super cycles are the same, with the length of the upswing and downswing varying significantly from cycle to cycle. It can take between 5 and 17 years for a super cycle to reach its peak. It could then take between 14 and 28 years to reach a trough.
Super cycles on record
Event
Period
Industrialisation in the US
1899-1932
Global rearmament before World War II
1930s
Reindustrialisation of Japan and the EU
1960s
Explosive growth of the Chinese economy
1990s
What do super cycles ride on?
Unforeseen surges in demand and high global GDP growth are widely accepted precursors to super commodity cycles. An unexpected rise in demand shifts the demand-supply equilibrium, driving costs higher. Super cycles usually accompany events on a global scale.
What the data says
A 100 bps rise in global economic growth leads to:
- 1,400 bps rise in oil prices
- 900 bps surge in base metal costs
- 700 bps uptick in agricultural prices
Building new supply chains to address demand takes time and resources. High consumer appetite pushes supply-side demand, which trickles down to raw materials. This is especially true of oil and metals. These industries can take 5 to 10 years to build capacity and leverage technology.
The agricultural sector is quicker to respond. The impact of demand can be seen in the following growing season, given that climatic conditions remain favourable.
Are we in a super cycle today?
Despite the predictability of growing demand (thanks to advanced analytics) and subdued global growth, we might be witnessing another commodity super cycle at the end of 2024. So, what’s fuelling it?
Shifting demographics
The global population has surpassed 8 billion people. This is a significant milestone, according to both population and commodity analysts.
As of 2024, there are 2 billion Gen Zs worldwide, accounting for 26% of the total population. Meanwhile, millennials account for another 22.9% of the global population. This means that nearly 50% of the population is in the high-consumption stage.
The rising middle class needs food, clothing, transportation, housing, and other goods. High consumption capacity translates into growing commodity demand.
Notably, the vast majority of Gen Z and millennials live in ASEAN (The Association of Southeast Asian Nations) countries. Asia is dubbed as the growth engine for 2024, accounting for 60% of the global growth.
For instance, Indian GDP growth is expected to surpass that of Japan and Germany by 2030, while China and Japan revamp their economies. This will make Asia the centre of attention in the coming years.
Energy transition
Commodities sit at the centre of the green transition. The share of renewable electricity generated, surpassed 30% of global power production in 2023.
Energy transition drives demand shift in metals & minerals
Are we in a super cycle today?
Governments and businesses worldwide are committed to net-zero targets. The focus is on building renewable energy infrastructure and making clean energy accessible at a granular level.
This pushes the demand for metals and minerals associated with alternative energy.
The transition to clean energy creates a demand-intensive environment for previously lower-valued commodities, such as lithium, copper, graphite, cobalt, nickel, hydrogen, and carbon.
Green future rides on undervalued commodities
Climate change policies could be the primary catalyst for the capital and investment redeployment shaping the commodities super cycle. JP Morgan's “conservative scenario” predicts that demand for critical metals could surge by up to 70% by 2030.
The challenge for mining companies is to expand capacities to meet the demand surge.
Typically, output expansion takes five to 10 years from permissions and infrastructure to production. However, the mining industry is as much a part of the emissions problem. The roadblock to expansion is that mining operations are often ESG (environmental, social, and governance) non-compliant. This means approvals and infrastructure development could take longer.
Geopolitical environment
Geopolitical tensions raise the demand for necessities and safe havens. Any worsening of the already uncertain geopolitical environment could accelerate the launch of the commodities super cycle.
Russia and Saudi Arabia, the two largest producers in the OPEC+ syndicate, sit at the epicentre of war zones. If the Russia-Ukraine war escalates into a nuclear one, investor sentiment will radically shift.
Similarly, if Red Sea routes get blocked, oil prices could soar. The palpable consequence of stress among nations would be investors’ inclination to safe havens.
The United States: The superpower to super cycle
The second Trump term is widely expected to ramp up drilling and increase oil exports.
This is set to induce greater volatility in the oil markets. Donald Trump’s America First policy could also reignite tensions with China. This could also mean more sanctions for many other nations and export restrictions.
The Fed’s higher for longer stance has helped the US dollar sustain record highs. However, the greenback will come under pressure as interest rates are lowered.
Globally, commodities are priced in US dollars, which makes their prices inversely correlated with the USD. A weakening of the US dollar versus commodity prices means other nations can purchase more. Higher purchase capacity will strengthen demand and commodity prices will rally.
What are markets saying?
In addition to the factors above, observing the markets can reveal whether a super cycle is materialising.
Investors chase gains while equities yield substantial returns. They take risks to build wealth. Investor sentiment shifts rapidly as the stock market reaches a point of saturation.
Hawkish interest rate policies across the world are dominating investment decisions. Once these subside, as inflation declines, portfolios will be rebalanced to fundamentally strong assets.
The natural next step to wealth accumulation is spending, which drives consumption surges. This is because the risk-averse sentiment pivots and investors turn to higher return, albeit higher risk, assets.
Another hold-up is in the agricultural sector, which is climate dependent. Farmers had curtailed output in response to weaker pricing. This means inventories are running low while demand surges. The upswing in demand will exert upward pressure on perishables as well.
Trading the commodities super cycle
Commodities have generated 116% returns between 2021 and 2024, says Bank of America (BoFA). BoFA analysts even suggest that investors consider making commodities the ‘40’ instead of bonds in their 60/40 portfolio.
Here’s what to watch out for.
Commodities index 10-year annualised returns (%)
Copper: The industrial metal
Copper reached a new all-time high in the first half of 2024, at $5.11 per pound . Although the price pulled back in the third quarter, the red metal’s price has largely remained above that seen in the past two years. By 2025, the world is expected to go into a supply deficit, pushing costs up. This means more upside for the metal.
Copper is a barometer of health in the global economy. It is widely used in diverse industries, like power generation and transmission, construction and manufacturing.
The metal is also crucial for a green economy and its price often mirrors business cycles. The growth of the mining, EVs and infrastructure industries is set to raise the demand for copper.
The over-dependence of mining companies on M&A rather than discovering new reserves could diminish the industry's ability to respond to the market. The outcome? Price surge.
Silver: Triple duty gives more incentives
Silver is a metal that has its own super cycles. The white metal is a key raw material for IT industries, green transition and money.
Silver has been in a deficit since mid-2021. But the 4 consecutive years of demand deficit have already played out in the silver markets. Silver price rose over 22% in the 12 months to November 2024.
The evolution of AI chips and PV cells will continue to drive silver demand while supply remains constrained.
The global supply deficit is set to widen in 2025 and beyond.
Gold: The OG safe haven
The yellow metal has eclipsed the record highs set by multiple currencies, including the US dollar, Japanese yen and Indian rupee.
Trading at $2,650.80 on December 2, 2024, the market is buzzing with predictions of gold hitting the $3,000 key level. Persisting geopolitical tensions, the AI-boom being considered to have hit a bubble and, of course, a declining dollar, all support the gold rush.
How to (safely) increase your exposure to commodities
The commodity sector is in a consolidation phase. This means secular investors have buying opportunities with highly in-demand metals still being undervalued at the beginning of December 2024.
Market forces create volatility, offering opportunities for traders. Long-term investors can consider energy and food-specific equities. For greater exposure, consider mining and energy-heavy indices.
Watch out for technological disruptions that could boost drilling capacity. Although experts say that the global economy is headed towards a “safe landing,” paying attention to global economic developments can help you spot trading opportunities early.
Given their significance in driving global growth in the coming years, Asian nations are critical to the commodity markets. Staying updated on the mining and green future policies can help make informed decisions. The yardstick for super cycles is high demand pushing prices followed by supply creation to balance it. Commodity prices have buoyed despite headwinds from high interest rates and the soaring US dollar.
The commodities super cycle, although atypical, is reasonable. Demand side drivers and constrained supply indicate that a seismic rotation is impending. So, stay prepared with a balanced and diversified portfolio and a strong risk management strategy. FXTM provides education and trading tools so you can make informed decisions.
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