Growing demand for industrial metals is spurring talk of a new commodities supercycle not dissimilar to Chinese-led supercycle which drove Australia’s mining boom through the 2000s.

Zinc, nickel and iron have all rallied in recent weeks while copper prices have broken to new all-time highs and most metals traded on the London Metals Exchange saw record year-to-date peaks earlier in the month.

This bullish momentum has been spurred on by surging demand as more countries look to transition their energy infrastructure towards lower emissions technologies which require large volumes of key ‘transition’ metals.

Energy and climate consultancy firm Enea Consulting expects this transition to drive a 10 – 15% increase in demand for copper in the decade ahead, while class 1 nickel demand will grow at a compound annualised growth rate of 5.9% CAGR up to 2025.

The effects of this transition on metal prices isn’t limited to industrial metals however. Enea noted demand for silver – a precious metal – for use within the auto industry will increase 79% by 2025 as cars increasingly go electric.

Automakers use the white metal in electrical connections within their vehicles.

Join a free webcast with Reach Markets’ MD Patrick Nelson on Monday, 24th May at 11am (AEST) for his take on the commodities market trends and the investment opportunities it brings. Book here.

Image: Visual Capitalist

As demand for these metals surges, supply appears to be lagging behind. Tom Stevenson, investment director for active funds manager Fidelity International, cautioned capital investment into new copper production capacity, for example, is “well below what is needed”.

“Of the more than 200 big copper deposits to have been found in the past three decades, only a handful have come in the last 10 years,” he said.

“Only 80 or so are now in production or have been closed. It takes years to develop a copper mine and in recent years shareholders have encouraged the payment of dividends over preparing for a future boom.”

While imbalances in supply and demand are responsible for the more conventional, day-to-day fluctuations in commodity prices, the kind of lag forecast by analysts today bears many of the hallmarks of a rarer supercycle.

In the past 150 years, only about four such supercycles have played out, each driven by structural shifts in the demand and use of the underlying commodities.

These include the pre-WWI arms race, the post-WWII reconstruction phase, and most recently, the rapid urbanisation of China (commencing around the turn of the century).

Image: Visual Capitalist

Policy shifts driving change

The growth in demand is underpinned by large-scale policy initiatives in major economies, notably the US where President Joe Biden has pledged to invest trillions into green energy initiatives and new infrastructure.

The UK, European Union,  and China have also signalled similar plans to decarbonise their energy grids.

Figures released this week by the International Energy Agency (IEA) show investment into clean energy will need to double to $6.4 trillion by 2030 if the world is to reach net zero carbon emissions by 2050 – a target which more than 100 countries have agreed to meet. 

This expenditure would see the market size for critical minerals like copper, cobalt, manganese and various rare earth metals increase sevenfold in the next nine years, the IEA report said.

“The IEA’s pathway to this brighter future brings a historic surge in clean energy investment that creates millions of new jobs and lifts global economic growth,” IEA executive director Dr Fatih Birol said.

“Moving the world onto that pathway requires strong and credible policy actions from governments, underpinned by much greater international cooperation.”

Please join our webcast on Monday, 24th May at 11am (AEST) for a discussion with Reach Markets’ MD Patrick Nelson on a diversified investment that can potentially capitalise on a commodities supercycle. Book here.

Reach Markets are the advisors assisting with the management of this offer and may receive fees depending on whether an offer is taken up by investors.

Sources:

• Aljazeera, Is the world on the verge of a new commodities supercycle?
• Australian Mining, Copper price rockets to all-time high
• Biden Harris Democrats, 9 Key Elements of Joe Biden’s Plan for a Clean Energy Revolution 
• European Union Commission, 2030 climate & energy framework
• Fidelity International, Is this a commodities supercycle?
• Financial Times, China pours money into green Belt and Road projects
• Financial Times, How can Boris Johnson hit his ambitious new carbon-cutting target?
• Forbes, Biden To Split New $3 Trillion Recovery Plan Into Two Proposals, With Infrastructure First On Deck
• The Guardian, Australia urged to drop coal and gas plans after global energy agency’s warning
• International Energy Agency, Net Zero by 2050 A Roadmap for the Global Energy Sector
• International Energy Agency, Pathway to critical and formidable goal of net-zero emissions by 2050 is narrow but brings huge benefits, according to IEA special report
• Investing Cube, Nickel Price Set To Rally 16% To $20k on Improved Technicals
• Metal Bulletin, Live Future Report 17/05: Zinc above $3,000/t again; LME prices gain over 1% after Friday dip
• Mining.com, Iron ore price rebounds as China steel output hits all-time high
• Sydney Morning Herald, Boom times: We may be having another commodity supercycle
• Visual Capitalist, More Than Precious: Silver’s Role in the New Energy Era (Part 3 of 3)