Commodities are essential goods or materials used in commerce to produce and manufacture
other goods or services. They are often interchangeable with similar goods and are used as
inputs in the manufacturing process. Commodities can include a wide range of products such as
agricultural products, mineral ores, and fossil fuels. They are traded in markets and can be
bought, sold, and stored as uniform standardized units.
A commodities super cycle refers to an extended period of boom in the commodities markets,
with prices moving significantly above their long-term trends. These movements may even
outlast the business cycle and typically persist for well over a decade.
These cycles are caused by a unique combination of factors, with a common driver being the
interaction of large, unexpected demand shocks and slow-moving supply responses. One of the
most recent examples of a commodities super cycle began in the early 2000s and ended with
the 2008 financial crisis.
More recently, a surge in prices was driven by factors such as the post-pandemic recovery,
growing demand for green infrastructure, and increasing urbanization. Metal prices rose by
48% over the course of 2021, natural gas and coal prices reached record highs, and agricultural
products saw a 22% rise over the same period. Oil also soared over 300% from its lows in April
2020.
These price increases led to discussions about whether we were in a global commodity
supercycle or if they were just a consequence of supply interruptions and other shocks.
According to a report by Fitch Solutions, commodity prices are expected to remain elevated in
2023, despite a slight decline from 2022 levels. Out of the 26 key commodities analyzed, 19 of
them are projected to average lower on a year-on-year basis.
Notably, tin, palm oil, coking coal, lithium, cotton, iron ore, thermal coal, and coffee are expected to average sharply lower. Conversely, sugar, rice, cocoa, lead, and gold are anticipated to average higher.
We have seen a significant paring back of battery minerals like lithium but also conversely seen
record uranium spot prices.
The global energy transition is driving significant demand in critical minerals and metals for
multiple economic sectors. Geopolitical considerations have also encouraged exploration and
development in multiple parts of the world.
Combined with significant underinvestment in
mine development and processing, this elevated demand for a transformation that will go
beyond 2050, is expected to result in higher commodity prices for an extended period. This is
referred to as a commodities super cycle, where those investors in the right mineral resources,
stand to generate a significant increase in wealth.
