The second commodity crunch

Will the buckets be empty in 2021? Image credit: WhyAfrica

By Dr Nicolaas C. Steenkamp, geological consultant at Bowline Professional Services

24 June 2021 – Following the first commodity crunch in 2020 when production from mines were curtailed by Covid-19 restrictions and suspension of operations, a second commodity crunch is busy developing.

As we enter Q2 of 2021 producers have not been able to cope with the sudden increase in demand, with especially corporate buying and hoarding pushing the current supply chains to the brink of seizing up. Other challenges relate to shortages, transport bottlenecks and unpredictable price spikes approaching the high levels.

The main commodities for which world-wide shortage developed in May 2021 was copper, iron-ore, steel, and silicon for micro-chips.

The main distinguishing factor from previous crunch cycles is that this time around there is no clear point at which demand is projected to be met, or how demand will be met with increases in production and supply chains.

The situation has further been compounded by several natural and man-made crises that affect some of the major supply chains. Moreover, there has been talk of accelerated inflation soon.

Another set of factors that have a notable influence, is the increase in the e-services, and virtual movement of supplies and stocks along with increased demand for digital supply management and monitoring.

Massive delays in the delivery of stock to ports and increased Covid-19 prevention measures at ports, distribution sites and warehouses, creates a bottleneck which causes a ripple effect in the availability of consumer goods, specifically electronics. As a result, the shortage of semi-conductors and the spike in the copper price continue unabated.

China remains a wildcard, being able to influence world markets by selective short-term production and regulating there capacity and exports of manufactured goods, while stockpiling on raw import materials.

There has been a notable uptick in the number of small precious metals operations, with both operators and investors trying to capitalise on the high trading prices of traditional safe-haven commodities like gold and silver.

The increased demand for Environmental and Social Governance (ESG) compliance and environmentally friendly and sustainable mining and energy sources continue to drive up the prospect for Platinum Group Elements (PGE) producers.

Bowline is currently advising on how small-scale operations can benefit from the crunch by implementing a modular solution for their operations.

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