Commodity boom is over
Commodity prices are not expected to rise until the second half of next year, presenting a gloomy outlook for the resources sector for the next six months.
“From 2004 to just three months ago, commodity prices kept growing, but the commodity boom is now over,” Plato Investment Management managing director Don Hamson said at a Russell presentation.
“The calling off of the BHP/RIO deal was the last nail in the coffin for the end of the commodity boom.”
Commodity prices have now hit a 20-year low and the impact of a falling Australian dollar will be negligible.
However, the fall in commodity prices will adjust the supply and demand ratio, with unprofitable mines closing, according to Karara Capital partner Rohan Walsh.
“This will be a case of supply adjusting to demand as capacity is put on hold,” he said.
“Companies have responded very quickly to the issue of falling commodity prices.”
One problem still facing the resources industry is transport to waiting ships.
Walsh said the commodity transport sector has been lagging demand by about 12 months, so a slow down could help to improve infrastructure.
However, there could be opportunities for investors in the low valuations of resources stocks, as commodity prices won’t pick up until the first half of 2009, Walsh said.
Hamson said Plato was underweight in resources at present, but agreed there would be opportunities appearing on the investment horizon.
“The sector has been well and truly beaten up,” he said.
“We think thermal coal stocks are the most attractive, but while they can dig it out of the ground, the miners can’t export it due to poor port infrastructure.”
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