A Commodities Crunch Caused by Stingy Capital Spending Has No Quick Fix – by Chuin-Wei Yap (Wall Street Journal – June 8, 2021)


HONG KONG—A yearlong steep climb in commodity prices is testing an economics maxim: High prices cure themselves by spurring supply and quenching demand.

Languishing commodity prices led producers to slash capital spending on major resources by nearly half over the last decade, shrinking stocks of industrial metals to two-decade lows and reducing supplies across commodities. The crunch is now converging with a buying spree in key markets to supercharge prices—and there is no quick fix.

Since 2011, investments to develop the energy and mining sectors have fallen 40%, according to asset manager Schroders, leaving many producers unprepared for a recent boom in manufacturing and spending in the world’s two largest economies.

Read more

Commodities send loonie soaring, creating quandary for Canada – by Theophilos Argitis (Bloomberg News – May 17, 2021)


The broad rally in raw materials that’s lifted prices for crops, energy and metals is a bonanza for Canada’s economy and a major challenge for the nation’s policy makers, who are under pressure to ensure that everybody benefits.

Should the commodities boom hold, it would represent a windfall for the resource-rich nation endowed with oil, natural gas and vast lands to mine and farm. Export receipts are already at near a record and poised to go higher. The value of lumber shipments alone nearly doubled in the first quarter.

But Canada’s economy is already brimming with stimulus and may hit full capacity as early as this year, according to some economists.

Read more

Some analysts say ‘not so fast’ when asked whether this is a new supercycle – by Henry Lazenby (Northern Miner – May 13, 2021)

Global mining news

Economists are tracking a broad economic recovery across the globe that appears to be gathering momentum and commodity prices are trading at healthy-to-stratospheric levels amid recovering demand from the Covid-19 pandemic, escalating geopolitical tension between the world’s industrial juggernaut China and key mining nations like Australia, and circumstantial supply-side issues.

On May 12 iron ore prices surged to a record US$237.57 per tonne and copper broke out of a decade-long rut on May 7, as metal for delivery in July gained 3.2%, with futures trading at a record US$4.75 per lb. (US$10,470 per tonne) on the Comex market in New York, compared with the 2011 record of US$4.50 lb. (US$10,190 tonne).

Unprecedented infrastructure-focused stimulus packages add a new layer of incremental demand growth to already generally bullish commodity fundamentals, and in recent quarterly conference calls the world’s mining majors boasted of record revenues, cash flow and returns to shareholders.

Read more

OPINION: The infrastructure war between China and the United States is fuelling the commodities rally – by Eric Reguly (Globe and Mail – May 12, 2021)


There are all sorts of wars, a shorthand term beloved by politicians, economists and journalists. There is the trade war, the diplomatic war, the new Cold War, the war against the pandemic.

Yet another one is on the horizon – the infrastructure war – and it goes a long way to explain why commodity prices are soaring, with some of them, including copper and iron ore, hitting record prices in recent days. The war could trigger a new commodities “super cycle,” if we’re not in one already.

The infrastructure war is as much geopolitical as economic. It pits America against China, each of which is trying to lock up the resources required to rebuild their infrastructure and ramp up the transition to a clean economy, which will require vast amounts of copper, cobalt, nickel, zinc and steel to produce everything from electric vehicles (EVs) and wind turbines to “smart” power grids and solar panels.

Read more

History of commodity cycles suggests prices don’t go up forever – by Larry Berman (BNN/Bloomberg – May 10, 2021)


The history of commodity cycles can last for years. There is likely more to go in the current boom part of the cycle. However, they have shown strong patterns of boom and bust over decades.

Sometimes it is supply shortages in the case of weather issues or disease (or current the labour shortages or under investment). In other cases, spikes in demand permanent or temporary have caused big swings.

Often, on the temporary side, it is investment demand that can be fickle. Permanent increases in demand like population growth or in the case of copper, new technologies that demand more.

Read more

Investors Bet Billions That Metals Bull Run Isn’t Stopping – by Mark Burton (Bloomberg News – May 9, 2021)


A year into the red-hot bull run in industrial metals that’s lifted copper to record highs, investors are still piling in, staking billions of dollars that it won’t run out of steam any time soon.

The word from Wall St. is “don’t stop buying now,” with Goldman Sachs Group Inc. and Bank of America Corp. among those advising investors to load up in anticipation of a long-term rally fueled by the world’s recovery from the pandemic and a spending splurge on renewable-energy and electric-vehicle infrastructure.

Copper’s already doubled in the past year to more than $10,000 a ton, and Bank of America says $20,000 is possible if supply falters badly while demand surges. Copper extended its surge on Monday, rallying as much as 3.2% to a record high of $10,747.50 a ton.

Read more

Why the commodity supercycle narrative is overblown – by David Rosenberg and Ellen Cooper (Financial Post – April 30, 2021)


Once the full picture of a divergent economic recovery becomes clear, commodities will likely fall from the stratosphere

It has been surprising to see just how far commodity prices have soared beyond what could be considered real economic growth. Much of the rebound has been a result of the base effects from the pandemic plunge, but there are other factors at play as well.

The largest is China’s stockpiling efforts, which seem to have peaked in most commodities. But there are secular changes to consider, including the greening of infrastructure, that could indeed result in strong bull markets for select commodities such as copper.

As a reminder, in past boom/bust cycles for the highly volatile commodities sector, we typically see bear markets bottom out when the Commodity Research Bureau index hits -15 per cent year over year, while bull markets peak around 24 per cent.

Read more

Mining companies’ struggle to reduce Scope 3 emissions may jeopardize ability to survive – by Eric Reguly (Globe and Mail – April 20, 2021)


The world’s biggest mining companies are both blessed and cursed. They are blessed because most of them produce the commodities – copper, nickel, cobalt, among others – that are essential for the transition to the “clean” economy.

They are cursed because most of these same companies also produce the commodities – coal, oil, iron ore – that are warming the planet and falling out of favour with investors who increasingly view their portfolios through the lens of environmental, social and governance (ESG) standards.

So far, the cursed side is winning, with the Big Five mining companies trading at low valuations, generally 2½ to four times enterprise value (debt and equity) to EBITDA (earnings before interest, taxes, depreciation and amortization).

Read more

Long-term boom for commodity prices seen ahead – by David Berman (Globe and Mail – April 13, 2021)


A recent pause in commodity prices hasn’t blunted the view from some observers that we are at the beginning of a multiyear commodities supercycle, where demand outpaces supply and prices rise to new heights.

Copper, in particular, is the favourite play here, given its status as the metal most associated with global efforts to curb carbon emissions through the rollout of renewable energy, efficient buildings and electric vehicles.

But tremendous economic stimulus and many commodity producers’ cutbacks on development costs over the past decade could push up prices for other base metals as well.

Read more

Biden’s proposed $2-trillion stimulus will spill over into Canada — but it could also hurt our competitiveness – by Gabriel Friedman (Financial Post – April 3, 2021)


This week, U.S. President Joe Biden travelled to Pittsburgh, Penn., a rust belt steel town with an emerging tech sector, to unveil ‘The American Jobs Plan,’ which he characterized as the greatest opportunity to transform the economy in at least a generation.

With US$2 trillion in proposed spending over eight years, the plan lays out a roadmap to address climate change through emission reduction and investment in aging infrastructure, and it has delighted many in Canada who believe a large stimulus in the U.S. will carry spillover benefits for this country’s economy.

Biden’s proposal includes roughly US$1 trillion in spending over the next eight years just in areas related to a low-carbon economy — including charging stations for electric vehicles, new public rail and transit projects, grid modernization, clean energy manufacturing and research and development.

Read more

China’s Commodities Binge Makes America’s Future More Expensive – by Jack Farchy, Alfred Cang and Mark Burton (Bloomberg News – April 1, 2021)


The U.S. spending plan faces a big problem: Beijing got to all the raw materials first.

Fresh from passing a $1.9 trillion stimulus bill, U.S. President Joe Biden on Wednesday turned his attention to a similarly vast package of investment in infrastructure, and that means the U.S. is going to need more commodities. There’s just one problem: China.

America requires steel, cement, and tarmacadam for roads and bridges, and cobalt, lithium, and rare earths for batteries. Above all, it needs copper—and lots of it.

Copper will go into the electric vehicles that President Biden has said he’ll buy for the government fleet, in the charging stations to power them, and in the cables connecting new wind turbines and solar farms to the grid.

Read more

This commodity boom could quickly turn to bust – but a better opportunity awaits – by David Rosenberg (Financial Post – February 25, 2021)


China’s dominance, India’s rise and the shift towards green energy bodes well for some commodities

The recent run-up in commodity prices has unsurprisingly spurred discussions about a newly emerging commodity supercycle. It’s clear that we are in the midst of a supply-constraint led boom in this space, but this does not portend a long-term trend or decades-long supercycle ahead.

Indeed, any outlook of the sort that depends on a Roaring Twenties narrative, where global economies surge back to life once the pandemic is behind us, needs to be taken with a huge grain of salt.

However, we do see secular changes arising such as China’s increasing dominance and India’s rise (part of our “Go East” theme), as well as the global shift towards electrification creating opportunities for investors within a certain class of rising commodities.

Read more

Commodities supercycle or bull rally? Analysts point to silver as the one to watch – by Anna Golubova (Kitco News – February 26, 2021)


(Kitco News) – Are we on the verge of another commodity supercycle or just a post-pandemic rally after some major supply restrictions? A number of firms favor “supercycle,” and JPMorgan said signs of inflation support the view.

“We believe that the new commodity upswing, and in particular oil upcycle, has started,” the JPMorgan analysts said. “The tide on yields and inflation is turning.”

The idea is that the new supercycle will be driven by the post-pandemic recovery, inflation, accommodative monetary and fiscal policies, a deteriorating U.S. dollar, and a global fight against climate change.

Read more

Supercharged commodity boom: Definitely. Supercycle? Not exactly – by Mark Burton, Thomas Biesheuvel and Alex Longley (Bloomberg/Yahoo Finance – February 23, 2021)


A surge in commodity prices has Wall Street banks gearing up for the arrival of a new supercycle, but underlying dynamics suggest it isn’t going to be a repeat of the epic China-led boom at the start of this century.

Copper heading for new all-time highs, surging agricultural markets and oil prices back at pre-Covid levels are driving excited talk as economies, juiced by massive stimulus, rev up after Covid-19 lockdowns.

The theory is that this could be just the start of a years-long rally in demand for raw materials across the board.

Read more

BHP’s outlook, record dividend fuel supercycle talk – by Cecilia Jamasmie (Mining.com – February 16, 2021)


BHP (ASX, LON, NYSE: BHP) reinforced talks of a new supercycle on Tuesday by rewarding investors with a record $5.1 billion first-half dividend and forecasting a “very constructive” outlook for the commodities market fundamentals, as the global economy begins to rebound from covid-19.

The world’s largest miner said first-half profit jumped by 16%, hitting a seven-year high, as demand from top metals consumer China helped boosting iron ore prices by 70% in 2020, to a recent nine-year high of $176.90 a tonne.

That is well above the cost of roughly $10 to $20 a tonne most global miners spend in extracting the steel-making commodity, according to WSJ.com estimations.

Read more