Underlying the shorter term influences was the accelerating shift towards greener economies that would underpin demand for copper — where supply has been constrained by the dearth of large new resources and the increasing costs of exploiting existing reserves – along with demand for the nickel, cobalt and lithium needed for the surge in demand for batteries.
Some of the supply-demand pressures in the markets for some commodities will wash out as (hopefully) the economic recovery from the pandemic continues and broadens, production increases and the process of rebuilding inventories depleted by the pandemic that has been a factor in the price hikes.
It’s a confused picture, with an over-lapping element of relatively short, incident-driven cycles, longer-term lifts to demand for some resources from a change in thinking about the roles of government in some economies and particular structural drivers of a supercycle for some quite specific commodities.
Another important short-term influence has been China’s buying. It seems China took advantage of the pandemic-depressed prices last year to go on a buying spree, particularly targeting agricultural products.
That may have been to try to make up for the big shortfalls in China’s commitments under the trade deal it struck with the Trump administration to seal a trade truce or simply opportunistic.
Some of its purchases might also have been to accelerate the restoration of its key pig herd after it was decimated over the past several years by waves of swine fever.
The spikes in iron ore and other metal prices probably reflect to some degree China’s stimulus measures in response to the pandemic and then, more recently, a build-up in inventories of strategic metals.
A weakening US dollar might also be playing a role in the commodity cycle.
With China now winding back its responses to the pandemic and re-starting the deleveraging program that the pandemic interrupted its economic growth is moderating sharply and therefore the pandemic element of its demand for commodities will also decline.
The conclusion, therefore, is that there is a cyclical element to commodity markets that will wane as the recovery as vaccination programs in the developed economies rollout and those economies transition to more normal growth trajectories.
Some things, however, won’t return to normal or at least won’t return in the near term.
Governments around the world have injected many trillions of dollars into their economies in unprecedented levels of fiscal stimulus/relief. Central banks have overseen far more expansive monetary policy than they did during the 2008 financial crisis.
In the US the Biden administration is pursuing a radical, by US standards, economic and social policy agenda that involves massive increases in…