Jetting into the richest country in the world can feel a little like arriving in the past. Visitors to America are often greeted by outdated airports, crumbling roads and poor public transport as its infrastructure is leapfrogged by big investment elsewhere.
“American infrastructure absolutely has fallen behind the stuff being built in China and certainly in the Middle East, and it’s time the West caught up, frankly,” says John Meyer, mining analyst at SP Angel. “Governments have not wanted to spend public money on infrastructure… it’s as if the West was waiting for an excuse to do this sort of thing.”
The need to upgrade the country’s ageing infrastructure has become a rare common goal on both sides of the aisle in Washington. Joe Biden has set his sights on an investment spree that he hopes can simultaneously upgrade America, fuel the recovery and drive his green ambitions. But that will need metals, and a lot of them.
Meyer and top Wall Street analysts believe a global post-Covid investment boom will herald a new commodities “supercycle” – a multi-year and even decade-long surge in prices that is well above normal trends. Others remain sceptical, believing 2021 will prove to be the peak.
The commodities market ended 2020 on the front foot after the outlook was brightened by vaccine rollouts and government stimulus nearing $20 trillion globally. China, a key driver of demand, has bounced back from Covid, and was the only major economy to grow in 2020.
The S&P/TSX Global Base Metals Index – a broad measure of metals such as copper and iron ore – climbed by almost 30pc last year, hitting its highest level since 2011.
Copper gained 25pc and steel-making ingredient iron ore jumped almost 70pc. Meanwhile, oil prices have tripled since last year’s nadir with Brent crude close to $60 per barrel as demand hopes rise and Opec holds back supply.
The rise of the BRIC economies – Brazil, Russia, India and crucially China – triggered the last commodities supercycle in the 2000s. The emergence of the metals-hungry developing economies fuelled the commodities market, with the value of copper rocketing five-fold.
The next supercycle may be driven more by the West. The two greatest threats to the global economy – Covid and climate change – could herald the arrival of a metals boom.
The response of governments to the financial crisis was to tighten belts and clamp down on public spending. Monetary rather than fiscal policy rode to the global economy’s rescue, but roles have reversed during the pandemic. With central banks now operating with depleted ammunition on monetary policy, governments have had to rely on fiscal firepower to prop up their economies.
Plans for spending on infrastructure and green investment in particular are being drawn up. Infrastructure spending is widely seen as one of the quicker and most effective ways of boosting economies.
Boris Johnson has promised an infrastructure revolution to power his climate and levelling up pledges. Meanwhile, Biden has pledged that trillions of dollars will be pumped into America’s crumbling infrastructure, particularly on green initiatives.
Goldman Sachs analyst Jeffrey Currie argues the start of a commodities bull market has many similarities to the 2000s boom.
He says green spending could be “as big as BRIC’s investment 20 years ago” with under-investment in supply of “almost all commodities” and a weak dollar also echoing the price surge of the 2000s.
Metals driving the boom in green technologies – such as nickel, cobalt, lithium, copper and rare-earth metals – were seeing rising demand even before the pandemic. But governments are now stepping up plans to combine their climate and stimulus ambitions, especially ahead of the COP26 summit.
“It’s not just the fact that we’ve got stimulus projects coming along, but we’re all converting to renewable energy and electric vehicles,” Meyer says.
“These would be massive drivers on their own... I just think the world is going to struggle to produce enough metal, particularly for the new electric economy.”
He says the demand for metals used in the electric revolution will create “deficit situations across the board” as supply fails to meet fervent appetite.
“The fact is, the world doesn’t produce enough commodities. It doesn’t produce enough copper, nickel, tin, zinc.”
Meyer expects copper, currently at just below $8,000 a tonne, to reach $10,000 in the next two years while he says nickel could breach the $20,000 a tonne mark this year, a $2,000 increase.
“We acknowledge that the demand base is much larger now than it was 10 years ago, but we expect demand growth to be materially lower over next one to two years than in the ‘supercycle’ years and supply is set to recover from Covid disruption.”
He says the metals used for electric batteries will “experience transformational demand growth”, but says the driver from the green push needs to be put in context.
Chinese infrastructure and construction accounts for 30pc of global copper demand but these sectors will “plateau and contract over the next 10 years”, Major argues. Electric vehicles and renewables currently account for just 5pc of demand.
If the supercycle advocates are right, demand in China will become less important to metal markets in the post-pandemic recovery. The world’s second-largest economy accounts for at least half of the consumption of key base metals, including copper, aluminium and nickel, but analysts are shifting their focus.
Citigroup’s Oliver Nugent believes “the market will pay more attention to the world ex-China demand than it has arguably done for the past decade”.
High demand for consumer goods such as washing machines and fridges outside of China will push the copper market into a deficit later this year, he argues.
While Covid-19 and climate change pose big challenges for the global economy, the mining industry smells an opportunity as recoveries take off.