The future is now: How to win the resource revolution

Although resource strains have lessened, new technology will disrupt the commodities market in myriad ways.

few years ago, resource strains were everywhere: prices of oil, gas, coal, copper, iron ore, and other commodities had risen sharply on the back of high and rising demand from China. For only the second time in a century, in 2008, spending on mineral resources rose above 6 percent of global GDP, more than triple the long-term average. We saw a need for more efficient resource use and dramatic increases in supply, with little room for slippage on either side of the equation, as three billion more people were poised to enter the consumer economy.

While our estimates of energy-efficiency opportunities were more or less on target, the overall picture looks quite different today. Technological breakthroughs such as hydraulic fracturing for natural gas have eased resource strains, and slowing growth in China and elsewhere has dampened demand. Since mid-2014, oil and other commodity prices have fallen dramatically, and global spending on many commodities dropped by 50 percent in 2015 alone.

Even though the hurricane-like “supercycle” of double-digit annual price increases that prevailed from the early 2000s until recently has hit land and abated, companies in all sectors need to brace for a new gale of disruption. This time, the forces at work are often less visible and may seem smaller-scale than vertiginous cyclical adjustments or discovery breakthroughs. Taken together, though, they are far-reaching in their impact. Technologies, many having little on the surface to do with resources, are combining in new ways to transform the supply-and-demand equation for commodities. Autonomous vehicles, new-generation batteries, drones and sensors that can carry out predictive maintenance, Internet of Things (IoT) connectivity, increased automation, and the growing use of data analytics throughout the corporate world all have significant implications for the future of commodities. At the same time, developed economies, in particular, are becoming ever more oriented toward services that have less need for resources; and in general, the global economy is using resources less intensively.

These trends will not have an impact overnight, and some will take longer than others. But understanding the forces at work can help executives seize emerging opportunities and avoid being blindsided. Our aim in this article is to explain these new dynamics, and to suggest how business leaders can create new strategies that will help them not only adapt but profit.

Further reading: https://www.mckinsey.com/business-functions/sustainability/our-insights/the-future-is-now-how-to-win-the-resource-revolution