Don’t sound the death knell just yet: The resource “supercycle” might not be breathing its last breath.
The resource sector’s period of sharp price rises and heightened volatility is “alive and well,” say analysts of the business and economics research arm of McKinsey & Co.
“Rumours of the supercycle’s death are greatly exaggerated,” authors of the 2013 Trends Survey write. “Despite recent falls, commodity prices are still near their levels of early to mid-2008, just before the global financial crisis hit.”
By historic standards, resource prices are still high—even as the global economy slowly pulls itself out of recession.
On average, metals prices in nominal terms have increased by 176% since 2000.
Copper prices grew by 344%.
The authors also note that as supply becomes “increasingly unresponsive to demand,” price volatility is not going to disappear.
Ramping up supply will be a challenge but not because of any near-term absolute shortage of natural resources, the researchers write. Rather, three “persistent forces” are making it difficult to increase supply, including “a challenging geology that makes it hard to extract resources.”
The researchers also challenge the notion that demand from emerging markets, particularly China, is driving up prices. McKinsey’s Basic Materials Institute finds that while this factor is important, the changing cost of supply is a big piece of the puzzle.
“In the future … demand from China, more challenging access to supply, logistical and skills challenges, and the incorporation of environmental costs will all shape metals prices,” the report’s executive summary reads.
Reprinted by permission of Mining.com