The Start of a New Commodity Supercycle? Rising Like a Phoenix From the Ashes After the Pandemic

  • Build-up — The phase is typically associated with a change in the consumption pattern of the commodities. Anything could be a catalyst for change — a new application of the product, a geopolitical event or environmental concerns. Incidents associated with this phase may not be completely unexpected, but the pace and quantum of change could be surprising.
  • Accumulation — Demand for certain commodities or a sector starts to pick up while investment in supply remains at a nascent stage. The government and central bank maintain accommodative policies to help the economy recover from the previous downturn. Smart money starts to flow in, in anticipation of higher returns and to diversify into riskier assets.
  • Extreme optimism — A rising tide lifts all boats, and this is true for markets in this phase. A generally optimistic environment engulfs the broader commodity market, with large investment/speculative money starting to chase stronger commodity prices. Demand has yet to peak and the overall mood remains buoyant.
  • Reality check — Here, things start taking ugly turns, with industries focusing on cost savings and profitability. Higher commodity prices push up inflation and force central banks and governments to be cautious about stimulus.
  • Pessimism — With prices falling, speculative money starts liquidating long positions. Demand stagnates while supply continues to increase on the back of higher investments during the “extreme optimism” phase.

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Acuity Knowledge Partners

Acuity Knowledge Partners

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We write about financial industry trends, the impact of regulatory changes and opinions on industry inflection points. https://www.acuitykp.com/