A global mining commodity “supercycle” – a term that refers to a prolonged period (that sometimes lasts for more than a decade) of an unusual spike in demand for a commodity, which results in a sustained surge in prices – is thought to be likely approaching, according to some. This is in most part due to the recent huge spike in demand and prices for commodities. But some analysts say it is too soon to tell.

Due to COVID-19 restrictions, commodities experienced a recession, but have recently bounced back from it to become even stronger than they were prior to the pandemic – although experts say this is to be expected following a recession and growth may not be sustained.

There has been a recent surge in the production and prices of various commodities, including copper, oil, and gold, to name but a few. However, one commodity has gone from reaching record high prices to drastically dropping in price over the last few days: iron ore. This is one reason experts have doubts about predictions of an impending supercycle.

Why have iron ore prices cooled down and does this pose a real threat to the steel market?

China made a move to place tight restrictions on iron ore imports and made efforts to cut production to curb emissions in Tangshan, a steel-making city in the country. However, despite this, steel demand has persisted, and iron ore prices will remain high over 2021. It is predicted that there will still be efforts to keep steel production high outside of Tangshan, which means the steel markets will remain strong.

Neal Froneman, the CEO of South African gold mining group Sibanye-Stillwater, this month was confident that the global mining industry may be approaching a supercycle.

He referred to PGMs (platinum group metals) but also stated that his prediction of an upcoming supercycle pertained to commodities in general.

In a recent research note, Nedbank Group Economic Unit reveals that for the first time in seven months, copper output has risen, while gold production has risen for the first time in 11 months due to elevated commodity prices, a higher global demand, and increased and improved operations at key ports. In March, Statistics SA released the latest production figures for mining in South Africa. These figures reveal a 21.3% year on year increase.

Meanwhile on Twitter, a chief economist at Economists.co.za, Mike Schüssler, shared that the mining sector earned R75.1 billion in sales in March 2021 alone – in March 2020, the industry earned a far lower figure of R51.1 billion.

Froneman cited the world’s efforts at departing from fossil fuels and towards greener fuel-cell-based energy storage – which is made up mainly of PGMs – as one of the main forces behind the commodity price and production surges. This is backed by the results from Sibanye-Stillwater’s first quarter to end-March that show its total PGM production in South Africa increased by 6%. Anglo American Platinum, one of Sibanye-Stillwater’s competitors, saw its PGM output over the same quarter increase by 7%.

However, many analysts state that a supercycle will probably only occur in three to five years from now, the time it will likely take for the green economy and these greener fuel commodities to take root.

The bottom line

If analysts are right, a supercycle is unlikely to happen any time soon, and the high demand for metal commodities will most probably level out next year as new supply becomes more available globally. However, these commodities will continue doing well, even as their prices and demand drop.