The 35th Cyclope report on commodity markets was published on 26 May 2021 at a time when the prices of several commodities, particularly metals, are rapidly increasing. Since March 2020, the price of copper has risen by 125%, tin by 145% and iron by 150%. As for oil, after bottoming out at the start of the pandemic – at around $18 a barrel in April 2020 – the price of Brent crude oil is currently close to $70.
However, the authors of this report, who were supervised by economist and historian Philippe Chalmin of the Université Paris Dauphine-PSL, do not believe that the world will experience a “super-cycle.” In other words, they do not anticipate a general rise in commodity prices over a long period – one to two decades – followed by a fall, as some analysts and traders, either enthusiastic or alarmed by this prospect, are predicting.
Constrained supply in the markets
“Yes, there is clearly tension in some metals markets, due to the acceleration of urbanisation and the energy transition, which have led to an explosion in demand for minerals such as nickel, copper and cobalt,” says Yves Jégourel, vice-dean of the Faculty of Economics at the Université de Bordeaux. However, according to this specialist, “supply on these markets has been constrained in recent months, due to lockdowns, lack of investment and logistics slowed down by the pandemic.”
So, “now that the health situation is improving, supply could adapt to strong demand, by using recycled materials, for example,” says the analyst who oversaw the chapters on these markets in the Cyclope report. According to Jégourel, another way of adapting to the shortage is by substituting some metals for new technological solutions, such as switching to electric vehicle batteries that require nickel instead of cobalt.
Speculators are back in force
Furthermore, Chalmin, Jégourel and their colleagues note that speculators have returned in force to the commodities markets, particularly in Asia. They once again consider them to be an “asset class” and maintain this idea of a “super-cycle.”
“Of course, there are tensions on certain agricultural markets – such as soy – but the price increases in these sectors are not comparable to those observed for certain metals,” says Chalmin.
However, the director of Cyclope feels that the latter should not be lumped together. According to him, the price of iron – which has reached $200 a tonne in recent weeks – should return to more reasonable levels in the medium term. Indeed, China is pushing to increase production and diversify its iron supplies, particularly in Africa, as it feels it’s currently too dependent on Australia and Brazil.
Cyclope’s experts also point out that energy markets are not overheating. “Admittedly, the rise in oil prices since March 2020 is impressive,” says Perrin, who wrote the Cyclope report chapter on black gold. “But current prices have simply returned to their pre-pandemic level, at $68 a barrel on the evening of 25 May, which is far from impressive,” he says. “As for natural gas prices, they remain very volatile: between $1.5 and $30 per million BTU in recent months and at around $10 at present,” says Perrin.
Further diversification in Africa
Africa’s major metal ore producing countries – the DRC, Guinea, Zambia, Mauritania and South Africa – can be happy about rising prices for copper, cobalt, iron, aluminium, palladium, platinum and nickel.
But despite the substantial profits they will make in 2021, Cyclope analysts urge these producers to continue to diversify their economies. This is because, according to Chalmin, their dependence on these extractive industries makes them particularly vulnerable to the “commodity curse.”
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