What is a commodity supercycle?

The global economy tends to move in a cyclical manner, going through four stages before completing a full circle: expansion, peak, contraction and trough. A supercycle is a sustained or continued period of expansion, usually driven by strong growth in global demand. Supercycles tend to follow fast industrialisation and urbanisation periods.

But what does commodity supercycle mean in this context? It is the same as a supercycle – continuous period of growth – but specifically for commodities.

The commodity supercycle definition is an extended period of robust growth in commodity demand, which suppliers may find extremely difficult to meet, leading to a rally in prices that can span several decades. A commodity supercycle may therefore trigger global inflation.

Commodity supercycle explained

A commodity supercycle usually takes place during the expansionary period in an economy and indicates long periods of growth in the commodity markets. 

According to the Bank of Canada, the cyclical movements in commodity prices can be divided into different groups on the basis of their periodicity: long-run trends, which can last more than 70 years; supercycle lasting between 20 to 70 years; and short-term volatility, which lasts less than 20 years.

Various events may trigger a commodity supercycle. For example, a weakened US dollar (USD) may boost surge in commodity prices as a lot of them are denominated in USD. Monetary and fiscal policy may have an impact on commodity prices too, for example, central banks’ dovishness or major infrastructure spending. 

In other words,  commodity supercycles can be caused by factors that lead to higher commodity demand or an insufficient supply.

Commodity supercycles are relatively rare. It must be noted that only four commodity supercycle examples have been noted in the nineteenth century, each related to a period of structural change in the economy around the world.