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Prolonged Market Phenomenon


A commodity supercycle means a prolonged period of boom and bust in commodity markets, with prices falling significantly above or below their long-term trends. In other words, it is a sustained rise in commodity prices that lasts for more than five years, like the one that began in the early 2000s and ended with the 2008 financial crisis.

Prolonged Market Trends

Commodity prices can be volatile. But what do analysts mean when they talk about a commodity supercycle, and how can we tell a supercycle apart?

These movements can even last longer than the business cycle, and typically persist for more than a decade. John LaForge, head of real asset strategy at the Wells Fargo Investment Institute (WFII), explained that commodity super cycles are defined by both their duration and the breadth of assets they cover.

Commodity Supercycle

But is it an exaggeration to talk about a new “super cycle” of raw materials?


Here we take a closer look at what a commodity super cycle is, what’s coming up for commodity prices, and what this means for investors.

Commodities had a good run last year, according to an October 2022 World Bank report. Metal prices increased 48% over the course of 2022

Commodities generally do not act like other major asset classes, such as stocks or bonds. Commodities typically move together, like one big family, through long boom (bull markets) and bust (bear markets) cycles. Because each cycle typically lasts between 15 and 20 years, we call them ‘supercycles’.”
Commodity Super Cycles Explained

Bank of Canada research identified four super bullish cycles in commodity markets since the 1900s, in each of which the commodity price index deviated by at least 10% from its long-term trend. Looking back could help shed some light on the causes of commodity supercycles, although each supercycle was caused by a unique combination of factors, one common factor was the interplay of large unexpected demand shocks and moving supply responses. slow.

What is driving the current supercycle?


While the above covers supercycles from a historical perspective, many analysts argue that we are at the start of a new commodity supercycle, with prices for metals, gas, coal, and agricultural products soaring from the course of 2021.

What commodities might be well placed to benefit from the actual supercycle?

But with demand for green infrastructure set to power the next super cycle, Tom Stevenson, chief investment officer at Fidelity International, expects demand for certain “green metals” like copper, nickel, aluminum and platinum to skyrocket. Years of low investment also mean that the supply of some metals is too low to meet demand, putting further upward pressure on prices.

Metal markets continue to experience asymmetric impacts from market news


What does this mean for investors and how they can benefit
of the commodity supercycle?

The validation of analyst projections regarding an energy supercycle suggests that we might be entering a protracted phase characterized by escalating commodity prices.

Investors are turning to gold as their favorite option in the commodity market, with the intention of anticipating what will be a turbulent fourth quarter for the sector, given the possibility of a “fiscal cliff” that could contract the United States economy. States and encourage another round of monetary stimulus.

Monthly commodity price indices
commodity supercycle
Source: World Bank

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