Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 241

Commodities rebound still running

Mining has always played a major role in Australia’s stock markets, from the first days of informal share markets in dusty mining towns in the early-mid 1800s and up to today. About every 30 years, there is an almighty mining boom when great fortunes are made quickly, followed by busts when fortunes are lost, and many long years waiting for the next boom.

China dominates demand

The most recent mining boom was driven by China’s surge in demand for the minerals it needed for its industrialisation, urbanisation and export manufacturing booms starting in the early 2000s. China quickly became the largest consumer in almost all industrial commodities in the world. Commodity prices soared as supply (exploration, development and bringing new mines into production) takes several years to catch up with surging demand.

The 2000s China-led mining boom was punctuated briefly by the GFC but thanks to China’s massive stimulus spending programmes to boost activity when the GFC crunched global trade, the mining boom went on to peak in April 2011 after the Fukushima tsunami. The Aussie dollar hit US$1.10 and BHP reached $50. Mining companies went on a wild debt-funded spending spree buying over-priced mines at the top of the market assuming prices would rise forever. They don’t.

Then supply caught up and overtook demand, as it always does. On the supply side, many of the mines developed early in the boom came into production. On the demand side, Chinese urbanisation reached 50% of the population and started to slow, and global demand for Chinese exports reduced in a lower spending post-GFC world. Chinese economic growth peaked at 14% in 2007 but by 2012 the growth rate had halved. Rising supply and slowing demand resulted in price falls and this is how all mining booms end.

Here is a price chart for Australia’s two largest exports: iron ore and steel.

Click to enlarge

The commodities price collapse ... and rebound

Prices of all industrial commodities collapsed by up to 80% in the four years following the 2011 peak. The price falls triggered losses and bankruptcies in miners, oil, gas and steel producers all over the world. These losses caused a global ‘earnings recession’ in the main developed markets including the US, UK, Europe and Japan, and triggered deep recessions and political crises in commodities producing emerging markets. The losses also flowed through to their bankers. Meanwhile Europe and Japan relapsed into recessions, and the collapse of the 2014-15 Chinese stock market bubble and housing boom raised fears of ‘hard landing’ in China, sending commodities prices even lower. The Aussie dollar followed the same path down.

The crisis ended when the Chinese government finally announced a range of new stimulus measures at the Peoples’ National Congress in March 2016, targeting 6.5% growth driven by deficit-funded infrastructure spending. This immediately turned around commodities prices, miners’ share prices and flowed through to rises in company profits and dividends over the past year. The Aussie dollar (and Australian share prices) followed the same path. In 2017, demand was supported by long-awaited signs of recovery in Europe and Japan and continued steady growth in the US.

In 2018, the AUD is now running into expensive territory again, but we see commodities prices remaining relatively firm this year.

 

Ashley Owen is Chief Investment Officer at advisory firm Stanford Brown and The Lunar Group. He is also a Director of Third Link Investment Managers, a fund that supports Australian charities. This article is general information that does not consider the circumstances of any individual.

 

RELATED ARTICLES

BHP v Rio v Fortescue: it's all about the iron ore price

I will survive! Investing amid structural change

banner

Most viewed in recent weeks

Raising the GST to 15%

Treasurer Jim Chalmers aims to tackle tax reform but faces challenges. Previous reviews struggled due to political sensitivities, highlighting the need for comprehensive and politically feasible change.

7 examples of how the new super tax will be calculated

You've no doubt heard about Division 296. These case studies show what people at various levels above the $3 million threshold might need to pay the ATO, with examples ranging from under $500 to more than $35,000.

The revolt against Baby Boomer wealth

The $3m super tax could be put down to the Government needing money and the wealthy being easy targets. It’s deeper than that though and this looks at the factors behind the policy and why more taxes on the wealthy are coming.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Are franking credits hurting Australia’s economy?

Business investment and per capita GDP have languished over the past decade and the Labor Government is conducting inquiries to find out why. Franking credits should be part of the debate about our stalling economy.

Here's what should replace the $3 million super tax

With Div. 296 looming, is there a smarter way to tax superannuation? This proposes a fairer, income-linked alternative that respects compounding, ensures predictability, and avoids taxing unrealised capital gains. 

Latest Updates

Investment strategies

9 winning investment strategies

There are many ways to invest in stocks, but some strategies are more effective than others. Here are nine tried and tested investment approaches - choosing one of these can improve your chances of reaching your financial goals.

Planning

Super, death and taxes – time to rethink your estate plans?

The $3 million super tax has many rethinking their super strategies, especially issues of wealth transfer on death. This reviews the taxes on super benefits and offers investment alternatives.

Taxation

Raising the GST to 15%

Treasurer Jim Chalmers aims to tackle tax reform but faces challenges. Previous reviews struggled due to political sensitivities, highlighting the need for comprehensive and politically feasible change.

Shares

The megatrend you simply cannot ignore

Markets are reassessing the impact of AI, with initial euphoria giving way to growing scepticism. This shift is evident in the performance of ASX-listed AI beneficiaries, creating potential opportunities.

Gold

Is this the real reason for gold's surge past $3,000?

Concerns over the US fiscal position seem to have overtaken geopolitics and interest rates as the biggest tailwind for gold prices. Even if a debt crisis doesn't seem likely, there could be more support on the way.

Exchange traded products

Is now the time to invest in small caps?

With further RBA rate cuts forecast this year, small caps may be key beneficiaries. There are quality small cap LICs and LITs trading at discounts to net assets, offering opportunities for astute investors.

Strategy

Welcome to the grey war

Forget speculation about a future US-China conflict - it's already happening. Through cyberwarfare and propaganda, China is waging a grey war designed to weaken democracies without firing a single shot.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.