Word on the street is that a resources supercycle is underway.

That’s when there’s a permanent step change in demand that can’t be met by supply, leading to prices sitting above incentive levels for an extended period.

But Wood Mackenzie vice chair metals and mining Julian Kettle reckons that despite rampant end-sector demand, supply constraints and healthy prices, it’s not all roses – with demand likely to slow as the global economy returns to normal.

“Commodities risk becoming a victim of their own success as inflation rises,” he said.

“The unravelling of quantitative easing, combined with tax rises, could prompt a sharp slowing of global economic activity.”

Kettle says that over the next few years, it’s “inevitable that the global economy will slow from its frenetic pace in 2021.”

Have we borrowed demand from future years?

“Tax rises are inevitable, not only to pay down government debt but also to go some way to help fund ambitious ‘build back better’ infrastructure plans,” Kettle said.

“Restocking and the release of pent-up consumer demand has obviously helped economic recovery, but this is something of a one-trick pony that won’t be repeated this cycle.

“Whether we’ve also borrowed demand from future years in the mad scramble to buy products, only time will tell.”

He reckons that demand for many metals and mined commodities looks set to wane in the next few years despite the rampant growth in electric vehicles.

“It’s unlikely we’ll see a continuation of the pace set in 2021, when demand has been supercharged by economic stimuli, pent-up lockdown demand and restocking along the value chain,” he said.

The current projected rates compared with f the last resources supercycle in 2003-2007. Pic: Wood Mackenzie.


The energy transition could get the ball rolling

But the energy transition makes a supercycle almost inevitable.

“It seems there is little debate now around whether the energy transition, particularly an accelerated energy transition scenario, will lead to a supercycle for commodities,” Kettle said.

“I believe that if the world pursues a 2°C decarbonisation pathway (our Accelerated Energy Transition 2°C or ‘AET2’ scenario) a supercycle will exist across a broad spectrum of mined commodities.

“The exceptions will be coal, which will see a drastic drop in demand, and iron ore.

Nickel, cobalt and lithium will be first to kick off

Over the next five years, aluminium, copper, nickel, lithium and cobalt will all experience greater absolute growth than was seen during the last supercycle.

For lead, zinc and metallurgical coal, absolute growth will be similar.

“Demand for traditional base metals will also be growing more slowly, while the declines in percentage growth rates for bulk commodities will be stark even under our base case Energy Transition Outlook (ETO),” Kettle said.

“However, perhaps on the basis of percentage growth rates it can be argued that for nickel, cobalt and lithium at least, the supercycle has started?”

It’s worth noting that mined commodities are trending to surplus over the next few years, and as prices look set to decline, Kettle reckons we might only know if we’ve experienced a supercycle when we look back “through the lens of history.”