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TD Economics sees short-term supply and demand conditions driving the recent rally in commodity prices, rather than the onset of a so-called commodity “supercycle.”

In a new report, TD said that the “remarkable” surge in commodities lately has sparked speculation about the prospect of a supercycle — a sustained run up in prices generally.

“While it’s early to conclude for sure, we doubt that the necessary conditions for a supercycle are in place,” the bank said. “Rather, we suspect that recent price movements have primarily been driven by a temporary supply-demand mismatch for most commodities.”

In particular, the strength of the global recovery has boosted demand, while pandemic-driven supply constraints continue to bolster prices, the report suggested.

At the same time, TD noted that financial market conditions have helped boost commodities too.

“Earlier in the pandemic, precious metals prices had benefitted from falling bond yields and a dramatic loosening in monetary policy, while a downtrend in the U.S. dollar has provided a more general lift to commodity prices quoted in U.S. dollars,” the bank said.

Growing concerns about inflation have also stoked commodities, which TD said creates a bit of a feedback loop, as “higher inflation expectations tends to drive up commodity prices which in turn leads to further upward adjustment in inflation expectations.”

Yet as economic conditions normalize, these forces will ease, curbing the upward pressure on commodities.

“We expect that the commodity price rally may have some further room to run over the next few months and have even built in more strength in some areas in [the third quarter],” TD said. “However, beyond some pockets of further near-term upside, we expect most commodities to start moderating in the second half of the year.”

Alongside easier supply-demand dynamics and financial conditions, other factors such as global demographics will also likely mute the upward pressure on commodity prices.

For instance, TD noted that China’s population growth is slowing, and that matters as “China accounts for 50% or more of global demand for some base metals, and has been a major contributor to oil demand growth. Another sizeable economy would have to embark on an infrastructure-driven economic transformation to provide a similar boost to what was seen in the 2000s.”

That said, TD also noted that such a push could come in the form of massive investment in green infrastructure in the U.S. and Europe.

Strong demand due to massive spending on projects tied to revamping power grids and other renewable energy sources could drive base metals, particularly copper, higher in the years to come, the bank said.