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IS MINING ON THE CUSP OF A ‘SUPER-CYCLE?’
New energy projects are driving demand for metals, including true energy levels – and resultant price increases. CREDIT: SHUTTERSTOCK
Could global mined commodities be on the cusp of a “super-cycle,” led by stimulus focused on new energy transition and the metals crucial to their development? Wood Mackenzie, the energy research consultancy, believes massive stimulus programs designed to pull economies out of the recession will sustain demand for most mined commodities. When economies recover and grow, it could stress suppliers who lacked investment to keep up due to the pandemic. “Under this scenario stocks of mined commodities will fall to critical levels, sustaining prices at a significant premium to incentive prices and resulting in supernormal profits being achieved,” said Julian Kettle, senior vice president, vice chair metals and mining, WoodJulian Kettle Mackenzie. “This could in theory Wood Mackenzie 6 BREAKBULK MAGAZINE www.breakbulk.com
sow the seeds for an overexuberant supply response as stakeholders chase the market. Our view is that this narrative regarding the start of a new super-cycle needs to be challenged, as there is a risk that the markets have got ahead of themselves.” The energy research consultancy defines a super-cycle as “a permanent significant increase in commodity demand and price, with the latter driven by an inability of supply to keep up with demand and exacerbated by speculative activity.” Following the first months of the pandemic, demand for mined commodities halted and prices slumped. Since the Covid-19 outbreak, governments, led by China, have undertaken massive green investment stimulus programs to offset the economic crash from forced lockdowns. While global economic growth was muted into Q1 2021, most mined commodity prices rebounded to above pre-pandemic levels. Some, such as iron ore, have climbed to multi-year highs, due to green energy demands and recent supply constraints, pushing prices up to 10-year highs. “These markets stand very much on
the cusp,” Kettle said. Average annual growth rates in the next decade “may be significantly lower on average than the last decade.” But the compounded effect would mean dramatic growth for copper, nickel and zinc. True energy metals, including lithium and cobalt, will see incremental demand rise substantially. The question is whether prices “have got a little ahead of themselves given supply for many markets will be strong for the next few years,” he said. “Certainly, higher prices are welcome as they should, if sustained, give stakeholders the confidence to invest in the supply required to meet the energy transition. But right now it’s a mixed bag and we would argue those higher prices are not justified by medium-term fundamentals,” he concluded. The last super-cycle ran from the 2001 recession to 2015, when prices cratered for most mined commodities. “The BRIC economies, led by China, were the drivers of high demand growth rates and sharply rising prices for some commodities,” Kettle said. Only the 2008-2009 global financial crisis paused the proceedings. ISSUE 2 / 2021
