Posthaste: Why the world may be on the cusp of a new commodity super cycle


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Some analysts are looking past the current ugliness of COVID-19 spread and slow vaccine rollouts across the world, and believe the trillions of dollars in fiscal stimulus, low interest rates and a global focus on climate change would trigger a new commodity super cycle.

“In the medium to long term, we believe that severe under-investment in new capacity in the context of a declining existing production base combined with growing demand from global decarbonization efforts has set the stage for the next commodities super cycle ahead,” Orest Wowkodaw, analyst at Scotia Capital Inc., said in a note to clients on Monday.

The bank raised its price target for zinc, nickel, copper and iron ore metals by between 9 to 14 per cent over the next three years.

Copper could be a major beneficiary as the metal’s market fundamentals look tight. The industry is facing its biggest net deficit since 2010, and could see inventories drain out amid surging demand from China and elsewhere.

“In our view, the industry will require a massive re-investment in new capacity to meet the supply challenges expected to arrive by the middle of the decade as depletions and grade declines at the world’s existing production base materially erodes output, driving enormous projected deficits beginning in 2025,” Wowkodaw and fellow analysts Daniel Sampieri, Alfonso Salazar and Jose Quintana wrote in their note.

In addition, a growing focus on climate change and decarbonization efforts is also bullish for medium to long-term global copper demand.

“Looking beyond the fundamentals, we believe a material improvement in oil prices and/or a depreciating U.S.dollar could provide significant momentum for copper prices sooner than we currently envision,” the analysts noted.

The Scotia analysts think while the nickel market is “structurally broken” in the medium term, demand for electric vehicles would trigger a new surge in demand.

Zinc’s rally had been interrupted by the pandemic, but Scotia expects the market to return to a structural deficit position by 2024, driven by a lack of supply growth.

Uranium prices may also ultimately pick up, as nuclear energy is regaining acceptance as an important energy source in a post-fossil fuel future.

“Although we anticipate prices remaining below long-term incentive levels for some time, we believe a market improvement may finally be on the horizon following a very painful 10-year bear-market post-Fukushima,” the analysts wrote.

BMO Capital Markets has also boosted its outlook for both precious and base metals on the back of what it perceives to be an “epic stimulus package in the first quarter” from the incoming U.S. administration of Joe Biden.

“Overall, we believe the gold industry is likely to reap record cash flow over the next year as the industry continues to benefit from significant restructuring that has seen profitability broadly restored to long-term average,” Brian Belski, chief investment strategist at BMO Capital Markets said in a report published Monday. “While the non-gold materials industries saw a cyclical decline in profitability, this is likely to rebound sharply over the coming quarters.”

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