SUPER CYCLE, CIRCA 1975 Evel would jump on bikes you would now think twice about riding to the shops, whilst wearing less protection than many London commuters.


Anyone who saw his attempt to jump a Harley Davidson over 13 buses at Wembley Stadium won’t forget that super cycles always look impressive on the way up, but don’t always finish as hoped.


SUPER CYCLE, CIRCA 2021 Coming back to 2021, the Commodities Super Cycle was wheeled out just as the world promised to emerge from last year’s COVID lockdown.


At first glance, the bullish commodity arguments looked reasonable:


• Equities had performed well from Q2 2020, so profit takers may need a new focus for their cash, especially if the Biden administration was less friendly to US corporates?


• Interest rates remained near zero or negative, with significant liquidity available


• The promised shift to e-vehicles would require a massive build-up of the electrical grid, with long term demand for copper, cobalt, lithium, nickel and aluminium


Car stories have been used to spark previous investor interest in commodities:


• Palladium: Auto catalyst demand and fears of restricted Russian supply were behind the palladium rally of 1997-2001, with Ford unlucky to buy at the top.


• Cobalt: Battery demand for electric vehicles and cobalt production concentrated in DRC saw cobalt prices rise from sub $30k in 2016 to almost $100k by 2018, in time for the DRC elections.


Chart 1: LME 3m Copper US$/Mt


SRB HAS BEEN CLAMPING DOWN ON COMMODITY PRICE SPECULATION AND HOARDING IN RECENT MONTHS.


It’s not only raw materials which are recycled, with the “commodities as a hedge against inflation” and “portfolio diversifier” arguments wheeled out this year, having been well used in the mid-1990s and from 2003 through 2007 to attract new investor interest. Remember (or forget) that during both those earlier periods, we saw no traditional US inflation (wage and manufacturing inflation drivers had been exported to China) and commodities gave no diversification benefit when financial markets collapsed in 2001 and 2008? Perhaps third time lucky?


TIMING IS KEY Some observers of the 2021 Super Cycle may think that the better time to buy metals was in Q2 2020, after the COVID induced global economic slowdown saw metals prices plummet.


LME Cu fell from $6300/Mt to sub $4400/mt by March 2020, attracting bargain hunters into the market. As with many price spikes, there’s often more believers in copper at $10k than at $5k (bitcoin buyers take note).


China’s State Reserve Bureau are believed to have a history of taking large positions in physical copper at low prices, which they tend to liquidate at higher prices, having previously bought significant tonnage in 2008/2009 around $3000/Mt.


The SRB may also have been copper buyers at the 2020 price lows, but the SRB has been clamping down on commodity price speculation and hoarding in recent months, also suggesting their strategic reserves could be sold to stop prices overheating.


Source: ADMIS / Reuters / LME


10 | ADMISI - The Ghost In The Machine | Q2 Edition 2021


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