The Great Commodity Supercycle of 2021
Analysts and investors seem to be bracing for a secular bull market in commodity prices as global consumption of raw materials rebounds sharply in 2021. Driving the so-called “supercycle” are factors such as growing interest in infrastructure investments, tightening regulations on green energy, and the economic recovery post-pandemic.
So far, lumber prices have already surged to a record-high. Western SPF (spruce, pine, fir) lumber prices rose to $1,000 US per thousand board feet (MBF) this week, significantly higher than last year. Demand for lumber has been driven by the growing number of home renovations across North America.
Similarly, oil has rebounded sharply. From negative prices per barrel in 2020, a single barrel of West Texas Intermediary now trades at $61. As the global economy reopens and people start flying or driving again, the price of oil could surge much higher.
These dynamics are also playing out in several other commodities. Countries are expected to demand much more coal, cement and steel as they invest heavily in infrastructure. This infrastructure spending could be a way to boost GDP numbers, which have sagged throughout 2020. China’s five-year plan, Europe’s Green Deal and President Biden’s economic stimulus plan all factor in infrastructure spending.
Meanwhile, supply is severely constrained. “Every single commodity market, with the exception of coffee, cocoa and iron ore, are in a deficit right now,” according to Jeff Currie of Goldman Sachs.
The rise in energy commodities – namely coal and oil – will further encourage governments to subsidize renewable energy infrastructure. This too creates a boom in materials such as lithium and copper that are used in electric batteries and wiring.
Altogether, experts believe prices of raw materials could be creeping higher for nearly a decade or more.