This commodity boom isn't dead, just resting: Clyde Russell

Aug 24 2012, 13:16 IST
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SummaryCalling an end to the commodity boom is problematic because the definition of what constitutes the boom depends on who you are.

Calling an end to the commodity boom is problematic because the definition of what constitutes the boom depends on who you are.

Since BHP Billiton shelved $40 billion of mining projects in Australia when announcing lower profits on Wednesday, the nation has been engaged in an exercise of navel-gazing and mud-slinging as to what has or hasn't gone wrong.

For Reserve Bank of Australia Governor Glenn Stevens the boom is far from over, with the economy growing at potential and inflation contained.

It's not a problem for Stevens that some of the resource projects under consideration won't go ahead because of cost pressures, as there is still a large pipeline for the next two years.

Even when the capital investment phase of the boom runs out, it will be replaced by the actual export of commodities from the new mines' liquefied natural gas plants, Stevens reckons.

For Rio Tinto Chief Executive Tom Albanese there never was a commodity boom in the first place, and the long-term bullish outlook for commodity prices remains intact, even if they are down currently due to a low point in China's cycle.

And Australia's politicians are having a field day, with Resources Minister Martin Ferguson first proclaiming the resources boom is over, much to the horror of his fellow ministers in the Labor Party-led minority government, who have staked their credibility on using revenues from commodities to pay for generous welfare entitlements.

He later rowed back saying he meant that commodity prices had peaked but the investments in multi-billion dollar projects will continue.

Of course, opposition Liberal Party leader Tony Abbott, whom the polls say would oust Prime Minister Julia Gillard if an election were held today, tried to blame the end of the boom on the government's new carbon and mineral resource rent taxes.

He's mainly wrong on that count as the new taxes wouldn't have made the slightest difference to BHP's Olympic Dam copper mine expansion, but he was on the right theme in a roundabout way, namely that higher costs are pressuring projects.

So, before we can pronounce on the vital signs of the commodity boom, it's important to decide exactly what we are talking about.

To my mind there are two main elements to the equation.

Firstly, there is the growth in volumes of commodities being consumed worldwide, led by rapid industrialisation and urbanisation in China and India.

Secondly, there is the increase in prices of commodities as a result of the first factor

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