The Week: Is the commodities super-cycle over already?

Commodities prices have been rolling over, particularly in the metals complex. Is the much-heralded commodities super-cycle a damp squib?


  • The weak spot has been the metals complex: iron ore, in particular, has slumped since the start of August
  • The driver for the weakness of iron ore and, to a lesser extent, copper and other metals, has been concerns over demand from China
  • It may also be that commodity prices and the share prices of mining companies moved ahead of themselves

What happened to the great commodity super-cycle? A few months ago, it was all investors could talk about. Infrastructure plans across the world were supposed to create demand for a range of commodities, while rising CPI would drive investors towards this inflation-friendly asset class.

Yet the majority of commodity-focused funds are down in the short-term. JP Morgan Natural Resources, for example, has dropped 6.4%, BlackRock World Mining is down 7.7%. Those focused on gold miners have been even harder hit: Ruffer Gold is down 14.1%, iShares Gold Producers down 13,5%.

Some commodities are still rising: natural gas, for example, is up 17% on the month and the oil price has been relatively stable. However, the weak spot has been the metals complex: iron ore, in particular, has slumped since the start of August. The problem for many commodities funds is that iron ore remains a major moneymaker for BHP Group, which is often a large holding in their portfolios.

The driver for the weakness of iron ore and, to a lesser extent, copper and other metals, has been concerns over demand from China. China’s response to the crisis was to build, but with recovery underway, it has pared back its plans. This has coincided with Brazilian iron ore coming back on stream after the pandemic.

Does it mean that the commodities supercycle won’t materialise after all? Certainly, there is demand from the US and other developed nations. The money set aside for infrastructure packages is only just starting to be spent and may not yet be reflected in commodities prices. However, this may not compensate for China in the short-term.

It may also be that commodity prices and the share prices of mining companies moved ahead of themselves. A second commodity super-cycle, fuelled by green infrastructure development in the wake of the pandemic was a compelling story. Mining companies had been out of favour, paid attractive dividends and it looked like a no-brainer. But perhaps everyone had the same idea.

It is worth noting that many of the sustainable commodity funds - Fidelity Sustainable Water & Waste, Guinness Sustainable Energy, Pictet Clean Energy – performed well over the same period. It is too soon to judge whether a super-cycle is in progress and its likely shape. However, investors should approach it with caution.