The global economy could be on the brink of a new commodity “supercycle” as governments prepare to use a green industrial revolution to fuel growth in the aftermath of the coronavirus pandemic.
The price of raw materials, such as energy and metals, has reached record highs in recent weeks despite the ongoing spread of Covid-19 and is expected to rise further as countries embark on plans to a green economic recovery.
Market experts, including US bank Goldman Sachs, believe the boom could echo the latest “super cycle” of the early 2000s, led by strong growth in emerging BRIC economies (Brazil, Russia, India and China). ).
“Covid is already ushering in a new era of policies aimed at social needs rather than financial stability,” the US bank said. “This is likely to generate cyclically stronger and more commodity-intensive economic growth.”
Chris Midgeley, chief analyst at S&P Global Platts, said that “an unusual confluence” of global events had caused commodities markets to surge in recent months, but the trend was largely driven by growth in China.
Iron ore prices rose to $ 176.90 a tonne shortly before Christmas, the highest price since May 2011, and the market price of copper surpassed $ 8,000 a tonne for the first time in more than seven years. World oil prices have risen to 11-month highs of $ 55 a barrel with the help of the OPEC oil cartel.
“Construction sites are some of the few areas of the economy that have remained open, and in places like China, the government has been trying to stimulate that part of the economy,” Midgeley said.
The fiscal stimulus plans outlined by countries, including the UK and the incoming Biden administration in the US, are likely to increase demand for metals and energy to build green infrastructure.
“Products like copper, nickel and cobalt are likely to be driven by additional demand to build infrastructure. Even steel and petrochemicals will be needed, ”Midgeley said.
A weaker US dollar, the currency used to trade most commodities, could allow prices to rise further as demand grows.
Mark Lewis, global director of sustainability research at BNP Paribas, said: “I have been in the financial markets for 30 years and I have never seen anything like it. It seems that in any market you look at, investors want to buy. “
The next three decades are likely “to bring a supercycle in investments in clean energy infrastructure, clean transportation and everything else that is required to make the green transition possible,” he said.
Higher market prices for fossil fuels could increase the appetite for low-cost renewable energy, which will be even cheaper in comparison as fossil fuel prices rise, Lewis added.
Low-carbon energy will be even more economically attractive for major energy users in Europe thanks to record high prices for carbon permits in the EU’s emissions trading scheme, which reached € 34.25 per tonne of CO2 for the first time last week.
However, higher prices for fossil fuels could also tempt major oil and gas companies to invest in lucrative new projects by inflating the earnings of existing oil and gas portfolios in “one last party” for fuels. fossils, he warned.
“This is the dilemma of these companies. Any company will be interested in maximizing the returns on its [fossil fuel] briefcase. But we will be watching very closely if they start investing in new major projects. It will be a very interesting proof of their commitment ”.
George is Digismak’s reported cum editor with 13 years of experience in Journalism