The commodities super cycle is a term that is used by many people who are bullish on commodities. It is the belief that commodities have longer cycles than other asset classes because of the amount of time it takes to supply them.

Commodities are seen as like an oil tanker, a very slow ship to turn.  This is because it takes a long time to create the infrastructure for commodities to be produced.   Oil takes a time to find, a copper mine takes a while before it gets in production, and so on.  Even with the agricultural “soft commodities” it can take a long time to prepare or reclaim the land.  This means that it is quite hard for commodity producers to adjust to price movements.

Where a factory can be built and equipped in a matter of months, a mine takes years to prepare and get on line.  There is some ability to mothball mines during low prices or to stockpile resources, however the cost of capital and the fact that most commodities decline over time means that time is important.

In recent years commodities have gone up in price.  This boom is seen by many investors as having run out of steam during the credit crunch.  However those who are bullish on commodities say that the asset class has been beaten down for the previous two decades after the taming of inflation in the late 1970s and early 1980s.  Another decade in this forty year cycle is not at all unreasonable.