COMMODITIES SUPER CYCLE (TGITM Q2 2021) – Still waiting to jump
In early 2020 the Trump administration looked to have agreed a breakthrough in their trade war with China, which copper prices had been following closely since 2018. Looking back, 2018 was the high water mark of almost 3 decades of globalization in which commodities had played a massive role.
Trump’s trade war had other unintended effects, including weakness in the US equity market which forced the US Fed to start cutting rates from mid- 2019, using up an interest rate buffer which, unknown at the time, would be needed to cope with COVID.
Looking at the LME copper chart below, with US/ China trade and commodities prices poised to recover in January 2020 (A), the global economy was hit by COVID, causing a broad asset sell-off as we headed for a global lock-down.
Commodities dropped fast, with metals hitting lows in March 2020 (B) and WTI dropping below MINUS $37 in April (lack of spare storage for delivery), before savvy investors bought the lows and metals bounced to multi year highs by end 2020 (C). With the global economy still hampered by COVID, how to take profits?
In late 2020, some bullish banks started to suggest we were looking at the start of a new commodities super cycle, the last one being in 2003-2008 when investors bought heavily into the “commodities as a diversifier / hedge against inflation” argument, which fell apart in 2008.
This new commodity super cycle was predicted to have a life of 10-20yrs, with metals expected to benefit from the switch to EVs and the necessary work on boosting electric grid capacity.
Some investors bought the story, with metals rising in Q1 2021 (D), before sliding back by Q2. Copper prices picked up again after an historically tight market in LME week 2021(E), with prices volatile through Q1 2022 before dropping back sharply in Q2 2022 (F).
For any child with a bike in the 1970s, Evel Knievel was the expert on super cycles. He said “Anybody can jump a motorcycle. The trouble begins when you try to land it”.
Despite all the hype, the 2020 commodities super cycle is still waiting to jump.
Rohan Ziegelaar E:
rohan.ziegelaar@admisi.com T: +44(0) 20 7716 8605
LME Copper 3m US$/mt Source: LME/Reuters/ADMISI
$10000 $11000
$4000 $5000 $6000 $7000 $8000 $9000
Jan18 Jul18 Jan19 Jul19 D E
ANYBODY CAN JUMP A MOTORCYCLE. THE TROUBLE BEGINS WHEN YOU TRY TO LAND IT.
Evel Knievel
C F A
B Jan20 Jul20 Jan21 Jul21 Jan22 Jul22 Jan23
7 | ADMISI - The Ghost In The Machine | Q2 Edition 2023
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