The Commodity Super Cycle Is Not Meeting Three Requirements

In the S&P paper, “The World Isn’t in a Commodity Supercycle, but It Should Be,” the researchers find the commodity super cycle is failing on three tests needed for it to happen: rising supply and rising demand coupled with no appreciable ramping up in price. 

It is simple to infer that the world is in a commodities supercycle as a result of rising food prices, fuel costs driving up food prices.

A deeper look at the commodity markets reveals that we are not. 

Commodity markets as a whole are experiencing a surge in demand, yet companies and investors are hesitant to fund supply because they believe that market circumstances, governmental regulations, and timing are too ephemeral or uncertain to justify the types of upfront capital costs associated with new long-term upstream projects or infrastructure. 

The last widely acknowledged supercycle lasted from 2003 to 2007, when China's reforms and 2001 accession to the World Trade Organization unleashed significant forces on the world economy.

In emerging market economies, especially in India, where a sizable middle class is still developing, the per-capita consumption of commodities is still modest.

A sustained increase in demand, production, and prices might also be enabled by a more aggressive energy transition strategy among G-20 countries. 

Lithium carbonate, a battery metal, is exhibiting the kind of steady price growth that suggests a larger cycle is about to begin, and the hydrogen and carbon markets are just beginning to demonstrate robust growth in both supply and demand.