A commodity's price can double in a year, then stagnate for ten. This nervousness is anything but irrational: it stems from a feature specific to these markets, the slowness with which supply can react. Understanding that lag is understanding why commodities move in long cycles.
1 What is a commodity cycle?
An alternation of scarcity and abundance, over years.
Definition
Markets that breathe slowly
A cycle is the alternation, over several years or even decades, of phases where the resource is scarce and its price climbs, and phases where it is plentiful and its price falls. Unlike a manufactured good produced on demand, a commodity depends on a deposit, a harvest or a mine: its supply cannot be tuned by simply pressing the accelerator.
2 The supply lag
The heart of the matter: between the decision and production, years pass.
The long horizon
Ten to twenty years to open a mine
Discovering a deposit, securing permits, financing and building the mine: it commonly takes ten to twenty years before the first tonne. Throughout that lag, supply is fixed. If demand accelerates in the meantime, nothing can respond in the short term except the price.
3 Why prices spike before production
When supply cannot move, it falls to the price to absorb everything.
The inelasticity of supply
In the short term, you do not produce more copper or lithium just because the price rises: existing mines already run at full capacity. Supply is said to be inelastic. Faced with climbing demand, only the price can adjust first, and it rises hard, until new projects, years later, finally come on stream and calm the market.
4 The great cycles, or supercycles
When demand changes in nature, the upswing lasts a long time.
A change of era
Industrialisation yesterday, the transition today
When a structural upheaval installs durably stronger demand, the upswing stretches over a decade: this is called a supercycle. China's industrialisation triggered one in the 2000s; electrification, artificial intelligence and defence are fuelling another today, with copper in the lead.
5 Takeaways
To remember in a few sentences.
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A commodity is not manufactured on demand: its supply takes years to react.
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Because supply is inelastic in the short term, it is the price that first absorbs any imbalance.
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A structural shift in demand prolongs the upswing: that is a supercycle.
This notion illuminates an analysis
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The copper battle — where a decade of underinvestment meets China's leverage over sulfuric acid.