On the Brink of a New Commodity Supercycle

Build all the drones/AIs/cyborgs you want, I'm just making sure you're buying the materials from me. Plus, some key stock picks.

The house goes up, before its foundation!!

We are shifting from a fossil fuel economy to a critical minerals economy. Demand for the minerals needed to power the energy transition and defence is skyrocketing.

The beauty and the opportunity, is that this demand is arriving at a time of depleted deposits, chronic underinvestment and rising environmental/social risks.

Critical minerals are the backbone of both commercial and defence technologies. They are essential for semiconductors, batteries and magnets that power modern electronics and military systems.

This is where the investment case really comes into focus. Predicting which tech company will become the next 100x winner is nearly impossible. Lately, it can feel like picking drone startups is no better than throwing darts. But one thing is certain: the future, whatever form it takes, will be built on critical minerals. Without them, nothing gets made, nothing moves, and nothing scales. That’s why I believe it makes more sense to focus on the materials that enable this innovation, rather than trying to guess the next tech winner.

Today, we’ll look at the broader critical minerals theme and 4 interesting names in the space. A separate piece will dive deeper into rare earths and highlight specific stock ideas. Given the number of companies involved, this will be the first in a series of articles covering the sector.

Waking up?

The West has seriously underestimated the importance of rare earth elements, strategic metals, and permanent magnets to its economy and national security. And as often happens, the broader market suddenly wakes up and realizes: oh, we actually do need this! That moment is now and here’s how bad the supply situation has become:

"The whole car industry is in full panic," said Eckard, CEO of Magnosphere, based in Troisdorf, Germany. "They are willing to pay any price."

First, let’s put things into perspective. This chart from the USGS shows just how vulnerable the U.S. is when it comes to mineral imports. I couldn’t find a decent free equivalent for Europe but the situation is similar if not even more pronounced:

With China supplying 30 of the 44 critical minerals, it’s clear why the U.S. and its allies are finally prioritizing SECURITY OF SUPPLY OVER COST. As Eckard noted, industries are willing to pay any price, creating room for rising critical-mineral prices and stronger margins for producers.

Yes, it’s true that Chinese President Xi Jinping has agreed to allow rare earth minerals and magnets to flow to the US but this window should serve as a wake-up call: if the West isn’t completely dumb, it will use this opportunity to aggressively diversify supply chains and cut China’s leverage. Otherwise, the West will remain at the mercy of Beijing whenever it chooses to tighten the tap on critical minerals.

It’s a bit of a paradox, isn’t it? After decades of underinvesting in its own mining industry, the U.S. now faces the challenge of relying on foreign sources to meet the growing demand for metals essential to powering its expanding high-tech sector.

Speaking of underinvestment, the case for mining is even stronger given the slowdown in supply growth after years of limited capital flowing into the sector. Estimates project that, just for the US, investment needs represent 2.3 times the current annual capital expenditure.

Still, projections are not facts; they are estimates based on current data, models, and assumptions, all of which can change. I consider them, but I don’t give them too much weight. What matters more is what is actually being spent and produced. That is where historical and current capital expenditure data tell a clearer story:

The two charts help illustrate underinvestment in U.S. mining. The first shows inflation-adjusted spending on mining structures like wells and exploration, which reflects investment levels. The second shows metal ore production, which reflects actual mining activity. Together, they give a picture of both spending and output in the sector.

First, you see the multi-decade lead times associated with mining investments. The peak in production was reached only about seventeen years after the peak in investment during the 1980s. Now it is even worse: US mines take an average of 29 years from discovery to production, compared to 20 in Australia and 27 in Canada. So, if you start your project now, you will start to see some cash only after decades. How low would the present value of the project be if the cash flows are so far away? Would you even start it?

Other data shows that commodity-related capex made up about 35% of S&P 500 spending in the early 1980s and mid-2010s, but has dropped to under 15% in recent years. Meanwhile, tech-related capex has risen from under 30% in the early 2010s to nearly 45% over the past decade. Even though mining capex has ticked up recently, it is still falling short of what’s needed, partly due to rising project inflation costs. This trend is not limited to the US; it reflects a broader pattern across the West.

As population and living standards rise, so does the demand for metals and by definition you cannot recycle your way to growth. If capital isn’t flowing into new production, where will the needed metals come from? This supports prices because even if you invest today, the metal won’t be there tomorrow. The growing gap between supply and demand points to higher metal prices ahead.

The last time we saw this kind of setup was during the supercycle that began in 2002, driven by China’s extraordinary economic growth and rapid industrialization. While talk of a new supercycle has been around for some time now, with little to show for it, we have to acknowledge that several powerful forces are now converging. Some of these drivers have only recently come into focus and could potentially set the stage for a new commodity supercycle.

The converging forces driving this potential supercycle include the energy transition, the rise of AI infrastructure, India’s push for development, strategic government spending, and growing defence budgets. Unlike the early 2000s cycle, which was largely fueled by China’s industrialization, this one is supported by multiple simultaneous trends. It is also more focused on the industrial metals essential for electrification and advanced technologies such as copper, lithium, nickel, cobalt and rare earth elements.

While I do not want to get into India and the energy transition drivers, since I am sure you are already fed up with estimates that basically boil down to something like "nearly 20 percent of the total global mineral supply needed by 2035 has not even been found yet", the AI boom and rising defence spending are relatively new additions to the supercycle story.

The scale of AI-driven investments is staggering, with some estimates suggesting they could eventually demand as much electricity as the entire United States currently produces. This is especially striking when you consider that U.S. power generation has grown by only about 5 percent over the past ten years:

Of course, it is just an estimate, and the numbers vary depending on who makes them and how. But the impact is real and growing. In 2018, US data centers consumed about 76 terawatt-hours of electricity. By 2023, that figure had risen to roughly 176 terawatt-hours, making up around 4.4 percent of the country’s total electricity use. The challenge is not only generating that much power, but also delivering it to where it is needed. And again this is not just a US issue, the same challenge applies across the West.

Now add another layer.

Commodity bull markets tend to go hand in hand with a weaker U.S. dollar. The two usually move in opposite directions, and we are seeing that play out now. Since peaking in February 2025, the U.S. Dollar Index has dropped nearly 10 percent, reaching around 98.7 in June, its lowest level in three years. Behind the slide are structural issues that are not going away anytime soon: record debt levels and rising interest payments. To manage the pressure, the Federal Reserve is already shifting toward monetary easing, with up to 175 basis points of rate cuts expected over the next year. In this kind of environment, with persistent inflation and a weakening currency, it is no surprise investors are turning to hard assets like commodities. Historically, they have been one of the few places to preserve value when everything else is being repriced.

For a visual, this chart shows the Bloomberg Commodity Index (black line) alongside the U.S. Dollar Index (blue line, inverted). BCOM tracks a diversified basket of commodities, including key industrial and precious metals. While it also covers energy and agriculture, it’s still a decent proxy for mining returns (and that’s the data I have anyway):

Additionally, we’re now seeing signs that confidence in U.S. assets continues to erode. With rising trade tensions and weakening alliances, countries are likely to shift trade away from the U.S. and explore alternatives to dollar-denominated assets for their foreign exchange reserves. I elaborated the point here. Hard to think this isn’t bullish for hard assets as well.

Now let’s take a look at the first group of companies, both big and small, that could benefit from defence spending, the U.S. push for greater mining self-sufficiency, and increased investment in grid infrastructure.