McKinsey Resource Revolution report

The McKinsey Global Institute has released a review on commodities which can be found here, along with a nice tool for charting prices of various commodities which can be found here.

The crux of the report is to show that while many are calling the end to the "super-cycle" (which is a very ill-defined concept) McKinsey tends to disagree.

One of their key points across most commodities, but in particular metals, is that supply challenges are helping to keep prices pinned at a high level. More challenging geology and rising cost of labour and other inputs have meant new supply to meet demand has ultimately been more expensive.

But I think its a trap to believe that some supply side factors are structural rather than cyclical. To be sure, we have seen a lot of cost compression in many markets which have been under margin pressure and even in some that aren't.

Its also the supercharged rates of demand growth seen in the last decade or so that have incentivised miners to chase more challenging deposits be it due to geology or country risk.  There are very few commodities which have seen costs rise irrespective of strong demand, with platinum perhaps the exception.

To be clear, one of the big mistakes of the last couple of years is to assume that cost curves are static in the face of margins.  Across several commodities we have seen prices fall further and supply remain much more resilient than was assumed when using costs curves at height of prices & margins.