Commodity prices don't move randomly when a government decides a resource is strategically critical. They follow a repeatable four-phase sequence, and each phase has a distinct price signature.
Recognising which phase a commodity sits in tells you whether today's price move is the beginning of a trend or the end of one — and phases two and four point in violently opposite directions.
Copper crashing and rare earths spiking can look like unrelated news. They're frequently the same story, observed at different stages.
When a country decides it can't afford to depend on foreigners for a critical resource, it sets off a sequence that plays out over years. The pattern repeats across commodities and across countries, and each phase does something specific to price.
Phase 1 — Insulation: Prices Rise
A country becomes uncomfortable with its dependence on foreign supply and moves to build capacity at home. The tools are tariffs on imports and subsidies for domestic producers.
Domestic production is usually less efficient than the global supply it replaces — that's why it wasn't happening already. Less efficiency means higher costs, and higher costs mean higher prices.
Price signature: a grind upward, driven by policy rather than by demand. Watch for tariff announcements on a specific material as the tell.
Phase 2 — Expansion: Prices Fall Hard
Having committed to domestic production, the country doesn't stop at self-sufficiency. It overshoots, building capacity well beyond its own needs in order to capture global market share.
The result is a supply wave. Production floods the market, and a glut forms.
Price signature: a sustained crash. This is the phase where forecasts for a commodity get revised sharply lower and producers start warning about margins.
The oversupply is deliberate, not accidental. That matters because a normal supply glut self-corrects as producers cut output — but a strategically motivated glut doesn't, since the whole point is to drive competitors out. Price can stay low for far longer than fundamentals alone would suggest.
Phase 3 — Concentration: The Shakeout
Prices crushed in phase two do exactly what they were meant to do. High-cost producers elsewhere in the world become unprofitable, stop producing, or go bankrupt entirely.
When the dust settles, the country that flooded the market is one of the few left standing — and now controls a dominant share of global supply.
Price signature: low and stable, deceptively boring. Watch for mine closures, producer bankruptcies, and consolidation headlines. This phase looks like nothing is happening, which is precisely when the setup for phase four is being built.
Phase 4 — Leverage: Prices Explode
Now the dominant supplier has something valuable: a chokepoint. Export restrictions, licensing requirements, or outright bans become instruments of policy rather than commerce.
Supply that was abundant becomes scarce by decision rather than by geology. There's no quick fix, because the alternative producers were driven out in phase three and rebuilding capacity takes years.
Price signature: a violent spike, often on a single policy headline, with no natural ceiling until either the restriction lifts or new capacity comes online.
The Four Phases at a Glance
| Phase | What's happening | Price | What to watch for |
|---|---|---|---|
| 1. Insulation | Reshoring via tariffs and subsidies | Rising | Tariff announcements on a specific material; "critical mineral" designations |
| 2. Expansion | Overbuilding capacity to seize market share | Falling hard | Supply-wave commentary, glut warnings, sharply lowered price forecasts |
| 3. Concentration | High-cost producers exit | Low, stable | Bankruptcies, mine closures, rising market-share concentration |
| 4. Leverage | Dominant supplier restricts exports | Spiking | Export controls, licensing regimes, trade-war escalation |
How This Connects to the Rest of Your Framework
This cycle isn't just a commodity story — it feeds directly into the macro variables you already track.
- Inflation. Phases 1 and 4 are both inflationary through input costs. Phase 2 is disinflationary. A commodity in phase 4 can push PPI, and then CPI, higher regardless of what demand is doing.
- Tariffs. Phase 1 is essentially a tariff story, which means the same three-to-four-month pass-through lag applies here too.
- Growth. Phase 4 supply shocks hit manufacturing directly — expect it to show in ISM Prices Paid before it shows anywhere else.
- Uncertainty. Export restrictions are a geopolitical event, which typically means a safe-haven bid for gold alongside the commodity spike itself.
When a strategic commodity moves sharply, ask which phase it's in before deciding whether to fade or follow. A crash during phase 2 is likely to persist longer than fundamentals suggest. A spike during phase 4 has no natural ceiling. Same price action, opposite trades.