**McKinsey: AI, Partnerships, and Commodity Divergence Create Alpha in Metals vs. Energy**

A new analytical lens from McKinsey & Company reveals the structural forces compressing commodity cycles. The firm identifies three key factors driving this shift: accelerating volatility cycles, the growing influence of artificial intelligence on trading models, and rising investment in trading capabilities through partnerships. This combination is eroding the effectiveness of traditional supercycle-based strategies and concentrating value among a smaller group of sophisticated players.

The first factor is the compression of volatility itself. Shorter, more frequent cycles are creating a permanent divergence in the industry, favoring organizations that can move quickly. The second is AI, which is emerging as a defining competitive factor. While AI-driven analytics supports margin expansion, the early adoption of agentic AI is beginning to unlock additional value by automating post-trade operations and accelerating digital workflows. Early deployments show this can improve support-function efficiency by 50-60% and shorten deal cycles.

The third factor is a strategic pivot in how firms build capacity. Heightened volatility and competitive pressure are fueling greater investment in trading capabilities, but the preferred method is shifting from acquisitions to partnerships. A January 2026 survey of over 150 professionals found that 49% now favor partnerships over acquisitions, with support rising to 78% in Asia and 80% in the US. Metals and mining, along with oil and gas, are expected to see the largest increases in these investments.

The bottom line is a new baseline for the industry. Sector-wide trading revenues, while dipping slightly to $69 billion in 2025 from $72 billion the year before, remain roughly double pre-pandemic levels. This elevated plateau signals that the era of massive, prolonged supercycles is giving way to a more dynamic, high-frequency environment. In this setup, value capture is consolidating among firms with advanced AI, access to capital, and control of physical flows. For the rest, the challenge is adapting to a cycle that moves faster and rewards agility more than ever.

Factor 1: Accelerating Volatility Cycles and Physical Constraints

The new volatility pattern is clearest in the split between metals and energy. While these two sectors historically moved together, a distinct divergence is now in play. Analysts have dubbed it the "crocodile cycle," where precious and industrial metals climb while energy prices reset lower. This split is a direct result of how supply responds to price signals-and it responds at very different speeds.

For metals, supply is the binding constraint. Developing new capacity is a slow, costly, and risky proposition for miners. The result is a supply side that cannot quickly expand when prices rise. Global gold production, for example, has not increased substantially in the past decade. More recently, natural disasters and labor issues have hindered copper output. When supply is fixed and demand holds steady or grows, prices are pushed higher. This dynamic is being amplified by powerful new demand drivers. The energy transition requires vast amounts of copper for electric vehicles and grid expansion, while the AI revolution adds another layer: the largest data centers can require 50,000 tons of copper. Central banks have also been steadily accumulating gold, adding to support.

Energy presents the opposite picture. Here, supply has outpaced demand growth. Global production capacity has expanded substantially, and technological advancements have unlocked new sources, transforming the United States into a major exporter. While petroleum consumption continues to trend upwards, the sheer growth in supply has created a surplus. This fundamental imbalance is what's driving the downward pressure on energy prices, despite the ongoing demand for oil.

The key driver of the new volatility pattern is this divergence in supply response times and demand dynamics. Metals face a supply chain that takes years to adjust, making prices more sensitive to any shift in demand. Energy, by contrast, has a more flexible supply base, but one that can be disrupted by geopolitical events. This creates a volatile setup where metals are climbing on constrained supply and new demand, while energy faces headwinds from ample supply. For traders, this means navigating two different cycles-one where price signals are slow to translate into new output, and another where supply can respond more quickly, but is prone to sudden shocks.

Factor 2: AI and the Rise of Partnership-Led Trading

The second structural shift is about how firms are building the capabilities to compete in this new, faster-moving environment. The answer is a dual focus on artificial intelligence and strategic partnerships. Together, . On the technology front, early deployments of agentic AI are delivering concrete efficiency gains. By automating post-trade operations and compressing digital workflow bottlenecks, these systems are improving support-function efficiency by 50–60%. This isn't just about cutting costs; it's about shortening deal cycles and freeing up capital for more trading activity. For firms, this means they can move faster and manage more complex positions, which is critical when volatility cycles are measured in weeks, not years.

This technological edge is being paired with a strategic pivot in how firms expand their physical and financial reach. A January 2026 survey of over 150 professionals found that 49% now favour partnership-led expansion of trading capabilities, with support rising to 78% in Asia and 80% in the US. This preference is a direct response to the need for flexibility. Acquisitions can be slow and capital-intensive, while partnerships allow firms to quickly gain access to new markets, physical assets, and local expertise without the full integration burden.

The sectors targeted for the largest investment increases in these capabilities are metals and mining, along with oil and gas. This makes sense given the supply constraints and demand pressures discussed earlier. Building trading muscle here is about securing the physical flows that will be most valuable in a volatile, divergence-prone market. The bottom line is that firms are assembling a new toolkit: AI to automate and accelerate their internal operations, and partnerships to rapidly scale their external reach. This combination is the practical path to capturing value in a cycle that rewards agility and control of the physical supply chain.

Catalysts, Risks, and What to Watch

The current "crocodile cycle" is built on a fragile equilibrium. The primary risk is that the strength in metals is not sustained. If global growth slows, central bank buying reverses, or supply constraints ease faster than expected, the delicate balance could shift. A meaningful slowdown in demand or a quicker-than-anticipated supply response could trigger a sharp correction in metals prices, while energy markets might stabilize or even rally on geopolitical shocks.

The key catalyst for the metals rally is the pace of investment in new mining capacity. This will determine the longevity of supply constraints and the durability of the cycle. The industry is facing a multi-year lag between announcing projects and bringing them online. Any acceleration in permitting or capital expenditure will be a major signal that the supply bottleneck is easing. Conversely, delays or cancellations would reinforce the current tightness.

For precious metals, watch for shifts in central bank demand and geopolitical stability. The rally has been supported by reserve diversification and safe-haven flows. A sustained decline in central bank purchases, or a resolution of major conflicts, could remove a core pillar of demand. At the same time, these same factors remain sources of volatility; a new escalation could quickly reignite the rally.

In energy, the focus is on supply discipline. The sector's oversupply is a structural reality, but it is prone to sudden disruptions. Geopolitical events, particularly in key producing regions, are the most likely catalyst to tighten markets and reverse the downward pressure. The bottom line is that the cycle's stability hinges on these forward-looking factors. Metals depend on demand holding and supply lagging; energy depends on supply remaining ample and geopolitical risks staying contained. Monitoring these levers will be critical for navigating the coming volatility.