Globally commodity markets have rallied since the last quarter of 2020. Prices of crude oil (Brent), industrial metals (copper), gold, cotton and palm oil to name a few have all gained by anything between 50 per cent and 100 per cent from a year ago levels. The spike has been more pronounced in the first half of this year.

Massive demand destruction in 2020 due to the pandemic-related lockdowns pressured the market down as economic activity nearly stalled and business confidence turned weak. Fresh investment in productive capacities declined.

Come 2021, the sentiment is turning upbeat with large-scale vaccination and businesses gradually returning to normal. There is now a surge in demand, especially with China leading the way with its ravenous appetite for commodities to feed its growth needs.

Table: Broad Trends in Commodity Prices during June

Commodity 2021 2020 2019

Brent 72 41 65

Copper 10,000 6,000 6,000

Cotton 90 70 80

Gold 1900 1750 1350

Palm oil 1100 650 580

(Brent $/barrel; Copper and Palm oil $/tonne; Cotton US cents per pound; Gold $/ounce)


The surge in commodity prices as seen in the table alongside is telling. Some observers are wondering whether the world has entered a new commodity super cycle. Far from it, we are actually witnessing a cyclical recovery.

Commodity super cycle that started by mid-1990s ended with the global financial crisis (GFC) of 2008-09. China’s stellar growth – often double digit – for almost two decades created massive demand for a range of commodities including energy products, metals and agri-goods.

While China’s growth is now slowing, there is no other country on the horizon that can actually rival the Asian major’s appetite for commodities. The global commodity market has not really recovered from the after-effects of GFC.

Commodity markets are always subject to cycles driven by a host of factors including economic growth, geopolitics, monetary policy, currency and weather. The role of funds cannot be underestimated.

Supply-demand metrics

From time to time, the commodity market faces demand side shock and supply side shock. There will always be supply response to high prices but it usually occurs with a lag. In 2020, the market faced demand side problem; but in 2021 the market faces supply side challenges.

For commodities, in the short-term, the supply side is usually fixed; so, demand dynamics become critical. However, in the medium-to-long term, supplies and investment in productive capacities become critical factors. As demand begins to return with a bang, the supply side is unable to cope with the demand surge in the short-term. Prices inevitably rise.

(The author is a policy commentator and commodities market specialist. Views are personal)