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When Does a Commodities Boom Turn Into a Supercycle?

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Dennis Gartman, University of Akron Endowment Fund chairman, explains why he sees the start of a bull market in commodities.(Source: Bloomberg)
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Frenetic trading and surging prices for natural resources – from copper and iron ore to soybeans and lumber – had markets abuzz with talk that the pandemic bounce-back might trigger another “supercycle” for global commodities. With governments pouring recovery funds into infrastructure and pollution-fighting green energy projects, there were signs of a multi-year commodities boom that could stoke global finance and fuel inflation. Such seismic events enrich countries and traders that control resources and have the power to shape the world’s commodity markets.

An extended period of strong demand growth that suppliers struggle to match, sparking a rally that lasts years, sometimes more than a decade. That’s in contrast to short-lived cycles created by supply shocks such as crop failures or mine closures. Supercycles tend to coincide with periods of rapid industrialization and urbanization. The last one was fueled by China’s breakneck development after it joined the World Trade Organization in 2001, removing barriers to commerce. Economists identify three others since the start of the 20th century, each driven by a transformational event. U.S. industrialization sparked the first in the early 1900s, global rearmament accompanying the rise of Nazi Germany fueled another in the 1930s and the reconstruction of Europe and Japan following World War II powered a third.