Are Rising Commodities Just an Upturn, or Is This a New Super Cycle?

Commodity prices are rising as the world tries to emerge from the pandemic economic deep freeze. Is it just a return to normal or is there more to it?

In a typical cycle, rising prices encourage more selling and production, and less buying and consumption, creating conditions for a subsequent price fall, before the pattern repeats.

In most cases, the cyclical behavior of individual prices shows only limited synchronization across commodity markets (“On the development and impact of commodity prices and cycles”, McGregor et al, UNIDO, 2018).

So the term supercycle is reserved for the largest price fluctuations and longest cycles, typically lasting more than 20 years from trough to peak and back again, involving an unusually broad spectrum of commodities.

Past supercycles peaked in the 1910s, 1950s, 1970s and 2010s, according to a study of prices for 40 agricultural, industrial and energy commodities by economic historian David Jacks.

He argues that supercycles have usually emerged from the consumption rather than the production side of the market (“From boom to bust: a typology of real commodity prices in the long run”, Jacks, 2013).

Previous supercycles were driven by the industrialization and urbanization of the United States and First World War, the reindustrialization of Europe and Japan after World War Two and China’s industrialization and urbanization in the 2000s.

Jacks wrote:

“These are demand-driven episodes closely linked to historical episodes of mass industrialization and urbanization which interact with acute capacity constraints in many product categories – in particular, energy, metals, and minerals – in order to generate above-trend real commodity prices for years, if not decades, on end.”

“However, once such a demand shock emerges, there is generally a countervailing supply response as formerly dormant exploration and extraction activities take off and induced technological change takes hold. Thus, as capacity constraints are eased, real commodity prices revert back to – and below – trend.”

So, will the years ahead qualify as a supercycle?

There are multiple potential triggers for a larger-than-normal upswing in the cycle over the course of the next 5-10 years.

The next major economy likely to industrialize and urbanize is India, which would be large enough to set off a supercycle, though it is less clear whether this will happen imminently.

Construction of new energy infrastructure to support climate targets might also be large enough to trigger a supercycle if it happens fast enough and on a sufficiently large scale.

Finally, large-scale fiscal stimulus following the pandemic might be enough to trigger a supercycle, though it is not yet clear if the stimulus will differ from ordinary cyclical government spending.

At some level, whether or not this counts as a supercycle isn’t that important.  It sounds like we’ll be paying more for stuff no matter what we call the trend.

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  1. Don A. Hagerich
    Reply

    Maybe if we shutdown all the Pipelines like the XL we all can retire in Central Texas on Bit Coin Social Security, bask in the heat generated by the frozen Wind Mills like the former Mayor of Georgetown Texas and the Democratic Presidential Advisor AOC New York City US Representative ideas.

  2. Sonit
    Reply

    I hope Biden’s voters are happy now. He is giving help for a wall in the terrorist countries, and refuses to protect our borders. He has give CHINA access to our grid. He praises China and insults America and Americans. We don’t have enough money to keep us going, yet he gives money to foreign countries and probably won’t protest the olympics in China. (how in the world did they get the olympics in the first place)
    He is a traitor to this country, by not protecting our borders and our people. He is letting anyone who wants to come in, come in. This has already proven disastrous in Europe. Why do these people follow all failed policies instead of policies that work. Defund the police?!!! We need more police. Let more people in the country? We need patriots, no people who will not assimilate and will not work (honestly) We see how the cartel has taken over Mexico, yes, many policians and police have gotten rich by helping the cartel. Is that Biden’s ploy? Let them all come here? We can talk about schools and pipelines (which in my opinion is a traitorous act to take away our self dependence.) We can talk about defunding police and letting antifa tear down cities, while they run for cover and protection (at our expense ) because a few people broke into the capital. Well, it is the people’s house. Why are you so different from the people in Seattle, Portland, San Francisco, thos who live on the street, businesses burned, home burned, whole cities taken over, while you stood by and let it happen because you thought THEY had a cause.
    Well let me remind all of you in DC and politicians in all the cities in this great country; YOU WORK FOR THE PEOPLE. The people do not work for you. Many of you have lived off the people of this country for too many years, and should retire or go get a real job. One that you have to work 5-7 days a week to make what you are making now, if it is possible.
    Who caused the riots in DC on January 6th? You did, politicians. You did. You lied, harrassed, cheated, wasted your time for 4years and did nothing for the country. You tried to get a duly elected president of the U.S out of office, illegally, because he wasn’t one of your crooked masses. You were afraid he would uncover all your corruption, both dems and republicans. No man has ever had a harder time in a position, than President Donald J. Trump. And yet, through strength and persistance, that we have never seen in any of our lifetimes, he prevailed. He proved; “If God is with you, who can be against you?” He proved that goodness prevails and evil fails. We all know he is our president and he will be for as long as he chooses. We know, that with all of the executive orders Joe Biden made in his first 2 weeks, you were covering for him, because that is the only reason you wanted him in office, was to do your dirty work and reverse all good things for this country. My friends and I have asked each other so many times; if you don’t like the country you are in; what it stands for; what the majority beleives in; then leave. Just that simple. You act like the high school students who try to destroy the talented quarter back, because they are jealous and can’t do the job; or make fun of a beautiful young and smart girl, because they are jealous and don’t have what she has.
    I have always been taught; “If something is great and/or beautiful, respect it, honor it. But don’t try to be it or try to destroy it. Don’t compete with it. Always compete with yourself and be the best YOU can be. If you really can’t stand something or someone, then walk away. Especially, if you know, and you know, it is out of jealousy that you feel that way and lack power that you so badly want.
    There are so many more things to be said, but I will end here with, May God bless America, always and may her people love Him, believe in the freedoms He gave them, and never never, try to erase a past from books.

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