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Is China driving a commodity supercycle?

Fabrice Tayot
Fabrice Tayot
Commodity Proposition Director for Emerging Markets, Refinitiv

Fabrice Tayot, Commodity Proposition Director for Emerging Markets at Refinitiv, explains why he believes China will be at the forefront of the new commodity supercycle, and what this will mean for global commodities markets.


  1. The commodity supercycle seen in the 2000s was driven by a growing population, industrialisation and urbanisation in countries such as China and India.
  2. As China recovers from the impact of COVID-19, commodity flows suggest that it may already be leading a new commodity supercycle.
  3. Factors playing a role in the commodity supercycle include a strong GDP growth forecast, a consistent fiscal stimulus by the Chinese government and the relatively high level of interest rates retained by the People’s Bank of China.

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In 2020, between lockdowns weighing heavily on demand, supply chain disruptions, and price volatility soaring, COVID-19 has impacted commodity markets in ways never seen before.

But as we have now entered 2021, it is the perfect time for us to try to understand the long-term impact of the pandemic, and to also decipher the main market trends that will become apparent in the coming months.

While the effects of COVID-19 may take years to fully understand, it’s already possible to discern some trends that could form part of the ‘new normal’ for the commodity market.

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How will China drive the commodity supercycle?

The initial theme to consider is about how I believe China will be the driving force of the commodity supercycle 2.0. But we must first establish what is meant by the term ‘commodity supercycle’.

The term was popularised by Jim Rogers at the turn of the last century in his book Hot Commodities. Rogers argued that in the 2000s, the world had entered a new 15 year-long commodity supercycle, and accordingly would experience much stronger commodity prices.

And indeed, the 2000s were spectacular for commodity prices, with the whole sector (agriculture, energy, metals) experiencing a massive demand boost from population growth, industrialisation and urbanisation in emerging markets, in particular China and India.

However, as Isaac Newton said: “What goes up, must come down.” And since 2014, the commodity supercycle has been replaced by a long period of apathy for commodity prices. Some investment banks have even argued that global commodity demand has already reached its peak and that commodity supercycles are now a thing of the past.

Of course, a few of us beg to differ, and believe the world is about to experience a new commodity supercycle, which will once again be driven by China.

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China commodities prospects for 2021

Why China? Because China has emerged as the leading consumer of a broad range of commodities since the 2000s and any increase of its domestic demand may lift the markets to new highs.

Is China driving a commodity supercycle? Chinese crude oil imports in mbbl
Chinese crude oil imports were up 9.5 percent in 2020 compared with 2019. Source: Eikon
Chinese crude oil imports in 2020 were well above the five-year averag
Chinese crude oil imports in 2020 were well above the five-year average. Source: Eikon

If we look carefully at commodity flows for 2020, it will not be a surprise to anybody involved in commodity trading that China’s strong commodity imports have helped markets recover.

Not only was China the first major economy to show signs of COVID-19 recovery, but its post-pandemic stimulus and a low price background have also increased demand for industrial commodities. This has consequently pushed the price of several commodities to record highs in recent weeks, and these prices are expected to climb further in alignment with Chinese demand.

Iron ore price benchmark on the Dalian Commodity Exchange (front month continuation)

Iron ore price benchmark on the Dalian Commodity Exchange (front month continuation)
The iron ore price benchmark was up 53 percent in 2020. Source: Eikon

China experienced an impressive GDP recovery in 2020 (+2.3 percent compared with -3.5 percent globally), despite prolonged lockdowns. And as various analysts, including the World Bank, have forecast strong GDP growth in 2021 (with a consensus around 8-9 percent), I expect a strong domestic commodity demand increase in such markets as LNG, refined products, strategic metals and agricultural products.

IMF GDP growth rate forecasts

IMF GDP growth rate forecasts
The GDP growth rate in China is expected to be 160 basis points higher than global GDP growth, and 310 basis points higher than U.S. GDP growth in 2022. Source: Eikon

Now, of course, some of you may say that China’s monetary and fiscal stimulus will be more cautious in 2021 (and potentially drag commodities prices down).

However, I believe its economic policymakers will follow their current policies (as expressed during the Central Economic Work Conference in December 2020), and that the market should expect strong policy support for the economy in 2021 to mark the 100th anniversary of the Chinese Communist Party.

China interest rates vs. U.S. interest rates

China interest rates vs. U.S. interest rates
The PBOC Policy Rate remains consistent while the Fed Funds Target Rate goes lower. Source: Eikon

Beyond the stimulus policy, another factor to consider is the probable retention of higher interest rates (relative to the West) by the People’s Bank of China, which could contribute to a renminbi appreciation versus the U.S. dollar.

With strong 2021 economic fundamentals and continued currency strength, China’s total commodity imports should remain very buoyant, driving prices in a new supercycle.

Broader recovery in the global commodities market?

Obviously, China will not be the only country to show a strong economic recovery.

The market is already pricing in a brighter tomorrow, driven by successful vaccine distribution, additional stimulus packages in the U.S, an increasing amount of hot money, and, more generally, a global recovery leading to increased commodity demand.

Nevertheless, China, due to its size, will be leading the commodity recovery, and there are simply too many indicators to not acknowledge the momentum that the commodity supercycle is building.

Of course, some of you may be certain that the green transition will put a cap on commodity prices, especially in the energy complex, but that raises another question: what shape will the green transition in emerging countries take?

And I’ll happy to discuss it with you in a couple of weeks…

Commodities trading: Refinitiv provides the tools, fundamentals, forecasts, alternative data, and up-to-the-minute news that can help you set yourself apart from the pack