We haven’t seen the back end of this commodities bull yet
Commodity producers have resisted an urge to spend, and for now investors are enjoying generous returns
Buoyant commodity prices have the market wondering whether the cycle has again reached its peak. Prices are certainly high, but key commodities are not at record levels they reached in previous years.
The price of Brent crude oil at $81 is 47% higher over the past year, but nowhere near the $110 a barrel level it breached in mid-2014.
At $108 a metric ton, coal prices are way up from their record low of $49 in early 2016 but not yet at their all time high of $139 in early 2011.
Copper, at $2.79 a pound is far higher than its record low of $1.94 a pound, also in early 2016, but far below the record $4.58 a pound in February 2011.
Iron ore is trading at $70 per metric tonne – much improved from a record low of $37 in late 2015 but far from the $120 reached in February 2011.
It’s hard to see how record prices can again be reached any time soon. Global interest rates are rising amid increasing concern about the effect the US-China trade war will have on growth.
But it’s not just commodity prices that equate to profit. Leaner and meaner than ever before, mining companies were taught some hard lessons about capital expenditure in the wake of the global financial crisis. This time around (at least for now) commodity producers have been better at resisting an innate urge to spend, and instead, for now, investors are enjoying the generous returns.