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Boliden mines zinc, copper, gold, silver, lead and cadmium at its Myra Falls operations 95 kilometers south east of Campbell River, in Strathcona Park on Vancouver Island, B.C.DON MACKINNON

A recent pause in commodity prices hasn’t blunted the view from some observers that we are at the beginning of a multiyear commodities supercycle, where demand outpaces supply and prices rise to new heights.

Copper, in particular, is the favourite play here, given its status as the metal most associated with global efforts to curb carbon emissions through the rollout of renewable energy, efficient buildings and electric vehicles.

But tremendous economic stimulus and many commodity producers’ cutbacks on development costs over the past decade could push up prices for other base metals as well.

“In the medium to long term, we believe that severe underinvestment in new capacity in the context of a declining existing production base combined with growing demand from global decarbonization efforts has set the stage for the next commodities supercycle ahead,” Orest Wowkodaw, an analyst at Bank of Nova Scotia, said in a report.

His report, which focuses on the metals and mining sector, adds to the growing number of voices arguing that the stunning recovery in commodity prices last year is no mere blip.

In January, Goldman Sachs said that the 2020s share similar structural forces to the last commodities boom, in the 2000s. JPMorgan Chase said in February that the era of low bond yields and low inflation – which weighed on commodity prices for more than a decade – is ending, laying the groundwork for a long recovery.

Even Citigroup, which is skeptical of a broad supercycle for commodities because of the strength of the U.S. dollar, expects that copper and other base metals will enjoy elevated prices over the long term because of their links to decarbonization investments.

The bullish case, though, is facing a test right now: The Bloomberg Commodity Index, which reflects prices for oil, natural gas, grains, industrial metals and precious metals, has stalled over the past six weeks. After rising 46 per cent from April, 2020, to Feb. 24, 2021, it has since retreated nearly 5 per cent.

Copper, a standout that doubled in price over the past 12 months, has retreated about 6 per cent from its recent highs.

Full disclosure: I sold my shares in Freeport-McMoRan Inc., a copper producer, in February after a big run-up in the share price to nearly US$34 over the prior three months. I was worried that the bullish backdrop, including the green-leaning U.S. administration of Joe Biden and upbeat expectations for U.S. economic growth, was already reflected in the stock.

Mr. Wowkodaw, however, expects that stretched valuations for commodity producers are no reason to turn from an opportunity that could take years to unfold.

Renewed focus on climate change, he argued, is a game-changer for commodities: “There appears to be growing momentum for a postpandemic ‘green recovery’ funded by targeted government stimulus,” Mr. Wowkodaw said in his report.

He drew from Glencore numbers estimating that demand for copper will rise as much as 260 per cent by 2050, compared with 2019. Demand for nickel will rise as much as 375 per cent over the same period.

But the supply of copper, in particular, will eventually lag this demand. Mr. Wowkodaw expects that the copper market will be balanced in 2022 and 2023, before structural supply deficits emerge.

“In our view, the industry will require a massive reinvestment in new capacity to meet the supply challenges expected to arrive by the middle of the decade as depletions and grade declines at the world’s existing production base materially erodes output, driving enormous projected deficits beginning in 2025,” he said.

By then, he expects the price of copper will rise to US$4.50 a pound, up from an average of US$4 in 2022 and 2023, and underscoring the investment case for base metals miners. His top picks: First Quantum Minerals Ltd. (FM/Toronto), Freeport-McMoRan (FCX/New York) and Vale SA (VALE/New York).

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