Good article from Andy Xie on our late great, commodity cycle that peaked in 2008 with the credit bubble and then experienced a temporary price revival on government stimulus efforts, especially in China, in 2008-09. I too have been warning about downside in this sector and the risk that presents for unsuspecting companies, investors and countries like Canada and Australia. We are well past the time for wide-eyed optimists. See:
A Hard Landing Down Under
“The market went from not believing in China’s growth story a decade ago to extrapolating past performance into the infinite future. In particular, China’s massive stimulus in 2008-09 that revived demand for commodities amid a global downturn convinced investors or speculators in this industry not to worry, i.e., China could do the same again if there was another downturn. As demand has weakened and prices collapsed, the faith in demand and prices coming back is surprisingly strong. That is why so many marginal projects continue to seek funding.
The year 2008 should have been the end of this boom cycle. China’s stimulus misled the market into believing otherwise. China’s demand revival in 2009-10 was purely a governmental phenomenon. It piled more capacity formation on top of overcapacity. It merely postponed the inevitable adjustment and made it bigger. This is where the economy is now, paying for past mistakes. But the mining industry continues to believe and propagate the view that a big stimulus like in 2008 is coming…”
