What the model does
It resolves six drivers into two numbers, a level and a momentum reading, and places the resulting point on a cycle clock. The quadrant is the phase. This is the same construction as a business cycle clock and it is used here because industrial metals are the clearest expression of the physical cycle: they sit at the intersection of construction, manufacturing, credit and capital discipline, which is why they lead industrial earnings and lag monetary policy.
The six drivers and why they are weighted as they are
- Global industrial demand impulse, 25 percent. The largest weight because it is the proximate driver of consumption. Manufacturing output and new orders against trend.
- China credit impulse, 20 percent. Construction and infrastructure remain the single largest end market for most base metals, and the credit flow leads the activity by roughly two to three quarters.
- Visible inventory coverage, 20 percent, inverted. Weeks of consumption held in exchange and bonded stocks. This is the cleanest real-time read on whether the market is physically tight, and low coverage is bullish, so it enters with a negative sign.
- Mining capex to depreciation, 15 percent, inverted. The reinvestment rate across major producers. Heavy capital spending today is future supply, which is bearish, so it enters inverted. This is the discipline variable.
- Real price against a ten year trend, 10 percent, inverted. A price already rich against its own history is a late-cycle signal rather than a bullish one.
- Electrification demand intensity, 10 percent. Grid, storage and vehicle metal intensity against trend. A small cyclical weight because it moves slowly, but it carries most of the structural signal.
The four quadrants
Recovery. Below trend but improving. Historically the strongest risk-adjusted entry in the cycle and the hardest to act on, because the level data still looks poor and the narrative is still negative.
Expansion. Above trend and improving. Volume and price move together, operating leverage is at its most favourable, and this is where reported earnings look most impressive.
Slowdown. Above trend but deteriorating. The most dangerous quadrant for consensus estimates, because spot prices are still firm while the forward-looking drivers have already turned. Earnings typically peak here.
Contraction. Below trend and still falling. Supply discipline and inventory drawdown are the variables to watch, because the turn is usually visible in coverage before it is visible in price.
The supercycle test
A supercycle is not simply a large upswing. It is an upswing in which the demand impulse is structural rather than cyclical, arriving at the same time as a supply base that has been under-invested for long enough that it cannot respond within the normal lead time. Both conditions have to hold. Either one alone produces an ordinary cycle.
The threshold is a judgement rather than an estimate, and it is deliberately demanding. The distinguishing feature of a genuine supercycle is that new supply takes seven to ten years to arrive from a standing start, so a demand impulse that persists beyond the length of an ordinary inventory cycle cannot be met by the existing capital stock. That is what sustains a price level rather than a price spike.
Applications
- Sell-side equity analysts covering mining and industrials. The phase reading is the input most often missing from a bottom-up earnings model. The Slowdown quadrant in particular is where consensus estimates are most reliably too high, because spot prices have not yet confirmed what the drivers are saying.
- Commodity and macro strategists. Separate the cyclical call from the structural one. The composite answers the first and the structural score answers the second, and conflating them is the most common error in supercycle commentary.
- Corporate planning teams in metals-intensive sectors. Use the phase to time procurement and inventory policy, and the structural score to decide whether to hedge duration or to contract long.
- Researchers on industrial cyclicality. The level and momentum decomposition is a general construction. Substitute your own driver set and weights to build the equivalent indicator for any cyclical sector.
Limitations
Every model is a simplification and this one is explicit about which simplifications it makes.
- It requires the user to supply standardised inputs. The model does not fetch data, so the quality of the output depends entirely on how the trend deviations were computed and over what window.
- The weights are judgement, informed by which drivers have historically led, and they are not estimated. They are exposed in the documentation so they can be argued with, and they should be.
- It treats the metals complex as one object. Copper, aluminium and iron ore have materially different supply structures and end markets, and a single composite averages over that.
- The supercycle threshold of 0.75 is a convention. It is set to be demanding because false positives in this call are expensive and common.
- There is no price forecast. The model tells you where in the cycle the complex sits, not what the price will be, and the mapping between the two is not stable.
Use in client and published work
The model is free to use and the specification above is published so that results can be reproduced independently. Figures generated here should be cited with the model reference and assumption set, as with any other calculation. Extension, recalibration to a specific market, or integration with proprietary data are all within scope of a standard engagement: contact@quantiaconsulting.online.