Financial Crisis 2022: Super Cycle

The world economy is prone to periods of failure. The main four stages of the economic cycle are peak, expansion, contraction and the trough stage. Similarly, follows another new cycle. A Super cycle can be defined as the comfort period of expansion, usually undergone by sturdy growth in demand for product and services.  The globe has been smacked by scarcity of all kinds. The price of oil is reaching new peaks, the price of gold and silver is mounting. Where, the world inflation rate is striking records. With this price of commodities are increased which leads to financial crisis. The Ukraine-Russia crisis has made the situation completely worse. Read the article till the end to know more about Financial Crisis 2022: Super-cycle.

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Latest Price Outbreak

The recent price outbreak on commodity markets is the outcome of geopolitical tension, increased fears related to metal supplies, agro and energy, to be accurate. Precious metals gained because of increased investment demand and agitation of world global growth. However, the reason for price increase is short-term (weather shocks/liquidity pumping/existing wars). The current oppress rally designated a Super Cycle, would be in need of structural transformation followed by strong compatible demand over a few years, mainly from China. Meanwhile, the Chinese economy has been wrestling for notable growth in the middle of the energy crisis, real estate suppression and undergoing trade wars. With advanced economies, the International Monetary Fund expects the world economy to rise 4.4 percent in 2022 and in 2023 expects to grow 3.8 percent.

Low interest rates and a declining dollar stimulates the previous super cycle. But the situation now is entirely different. Inflation forces the central banks to take up financial tightening. Even at the cost of economic recapture.

Above this, the Electric Vehicles (EV) reverberation could cause sustainable demand rise for aluminum and nickel. However, due to supply-chain limitation, the automotive chip insufficiency has cut world production, just like expanding fleets of EVs by car manufactures. Insufficiency in chips leads to delayed EV transition.

There is a cyclical production and price structure among agro commodities. Apart from the production cycle, other constituents too would play roles at times.

While talking about Russia’s invasion of Ukraine, we can see a lot of variability in agro commodity markets. As Ukraine is the central character to the extent oilseeds and grains are disturbed. The supply limitations have only been seen in the upcoming seasons. One more factor that cannot be neglected is, soybean has led to vigorous development of the US renewable and sustainable aviation fuel industries. But it requires acres for taking soybean and grains (mainly in South America and Black Sea regions).

Although, we can’t ignore the prospect of a super cycle, the upturn could be short term.

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The Outline

Ukraine-Russia Crisis

• Russia was the supply head of oil. It owns nearly ~11 percent of global oil production. Different countries across the globe have exploited strong authorization on Russia. Which, take off Russian banks from the world banking system SWIFT.
• The SWIFT outlaw is applicable to about 70% of Russia’s banking operations.
• The RT and vaccine producer Sputnik was banned by the European Union.
• Meanwhile, Russia guaranteed that there will be no obstruction in supply to its customers regardless of the war that it has prosecuted against Ukraine.
• Jumbo’s and Airbus discontinued supplying to different parts of Russia. Lots of western countries have refused to let Russian ships and aircraft on their ports.
• India was one among the countries having a tactful relationship with Russia.

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Metal and Minerals

• The prices of Aluminum have reached top 26.99%, the price of Nickel at 24.33% and Zinc at 17.78%. During the same period the price of Gold and Silver have risen nearly up to ~8 and ~12 percent.
• About 6% of global Aluminum and 7% of mined Nickel are produced in Russia. Nearly, about 80% of global steel production and exports are done in Ukraine.
• The prices of other scattered metals such as Palladium, Neon and Platinum that are condemnatory for the manufacturing of microchips are also at the peak. With the continuing semiconductor crisis, the automotive industry will be disrupted by the insufficiency of these metals.
• Even the aviation industries rely on the Titanium manufacturing company of Russia (VSMPO-AVISMA). Jumbo’s and Airbus receive more than a third of their Titanium production. So far, there has been no authorization on VSMPO-AVISMA.

Oil Prices

• oil prices have reached the peak, where Brent oil is being traded at $124 per barrel. Also the WTI Crude oil has attained highness at $122 per barrel.
• The pressure proceeded to ascend as OPEC plus has declined to rise oil output even when oil price has reached peak after the Ukraine-Russia upsurge.
• In 2008 and 2010, the oil price attained peak during the period of the subprime mortgage crisis. The sudden price increase is due to the beaten supply chain.
• Russia also has a hold in supply of natural gas to Europe. Where many European countries rejected imports from Russia in the form of authorization ( which will effect the already inflated price of natural gas mainly in Western Europe).

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Even though we are diving through the Super-cycle, the 2019 pandemic hit along with the Ukraine-Russia crisis has doubled its effect. The companies around are already wrestling with the existing financial crisis. Moreover, the central banks begin narrowing the liquidity of the system. This is the time for an investor to stay disciplined.