Oil is but one commodity among many.
Of course, it just happens to be the one I trade.
Other commodities like gold, silver, copper, steel, lumber, and even coffee are all traded on the markets.
Every so often, these commodities see abnormally strong growth in demand (over about a decade, sometimes more) that defies most experts’ expectations.
This is called a supercycle.
Well-positioned and informed traders can often make a killing in these conditions.
And here’s the thing:
I think we’re on the verge of a new commodity supercycle…
Let me explain.
Oil
First, let’s cover oil because that’s what I’m involved in.
I don’t necessarily think oil is set for a supercycle (but other commodities look to be, which I’ll cover in just a sec). However, there is definitely plenty of oil optimism.
You see, OPEC recently reaffirmed its commitment to easing production restrictions gradually over the next few months on the back of strong economic forecasts.
Now, OPEC actually expressed concern about surging COVID cases in India, Japan, and Brazil and what it could mean for economic demand. However, they appeared optimistic overall about the global economy.
This must have instilled confidence in traders because US WTI saw a jump in price on Friday.
Should the COVID issues come under control in those countries, and vaccinations continue to roll out everywhere, oil prices should hopefully keep rising.
Car Sales — Specifically EV Sales — and Commodities
In 2020, car sales saw a 6% drop globally.
It makes sense: when you’re stuck at home, you don’t need a car as much.
Combine that with the economic consequences of the pandemic (leaving people with less money), and fewer people will buy vehicles.
But now that restrictions are easing and people are getting vaccinated, life is returning to normal.
Only one thing: they’re buying cars in droves to avoid public transit (where you might catch the virus), as a Bloomberg article pointed out.
People may be relying more on personal cars instead of public transit for the next plenty of years.
However, that doesn’t mean all those people who were using public transit to save the environment are buying gas vehicles. Nope, we’re seeing a huge shift towards electric.
At the same time that overall car sales dropped in 2020, EV sales expanded by 40%. If EV sales can expand when the overall car market shrinks, what do you think that means for EV sales as people get back to normal AND avoid public transit?
This is especially prevalent in Europe, which surged ahead of China to become the #1 region for EV sales. In fact, 2020 saw a doubling of European EV sales.
Of course, we see more EV sales in plenty of regions and countries, not just Europe and China.
But regardless of whether the car drinks gasoline or electricity, long-term increases in automobile demand will push plenty of commodities higher, which I think is part of the reason for this commodity supercycle.
Steel
Steel is used in plenty of modern cars. Not quite as much as older vehicles, but it’s still quite prevalent.
So this potential long-term surge in car demand will naturally drive steel prices upwards, alongside other factors, of course.
In fact, The NYSE Arca Steel Index – an index of steel stocks – has more than tripled since last year.
Many are also saying that China is a big driver behind increased steel demand, most likely due to its constant expansion of manufacturing, but also through building apartment complexes.
Copper — The New Oil?
Copper prices recently shot up above $10,000/ton for the first time since 2011, placing prices close to meeting and exceeding their all-time high.
There are plenty of drivers behind the rise of copper. It’s used in plenty of vehicle components, but stimulus (fiscal and monetary) and speculation play a part, too.
However, we also have to consider the demand for clean technology, especially around cars.
EVs use several times as much copper on average thanks to its conductivity, efficiency, and durability. You can’t forget about the copper used in EV charging stations and other supporting infrastructure.
Experts don’t think this rally is short-lived.
In a note to clients, Goldman Sachs wrote, “If green capex is at the center of the commodity supercycle, copper lies at the center of green capex.” Green capex being capital expenditures on green tech.
Goldman Sachs even called it “the new oil,” too.
At the same time, we’re fast approaching a copper supply crunch, with peak mine supply about two years out. When that happens, well, price really only has one way to go.
Lumber?
Believe it or not, metals aren’t the only commodities surging in price. Lumber’s seen big jumps in price, too.
Why could that be?
Well, consider this: lumber mills had to halt production in plenty of states per government orders. At the same time, plenty of Americans were locked at home with nothing to do.
Many of these people might’ve run to the nearest Home Depot or Lowes to do a little DIY renovation at home.
That’s not all, though. New housing skyrocketed thanks to record-low interest rates. More housing means more wood is needed.
And hey, maybe some people picked up a woodworking hobby with their extra time.
Lumber supply might be increasing again as lockdowns lift, but mills are still seeing demand outstrip supply.
The Commodity Supercycle Might Be Here
Keep one thing in mind: oil and its byproducts are used in countless everyday items, not just gas-powered vehicles. Oil isn’t going away, but it’ll be interesting to watch it and other commodities within the near future.
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