When will the resources boom end?
by Michal Park, 02/03/06

Resources booms - Australia experienced one in the 1850s with the gold rush, again at the turn of the century and again in the late 1960s.  The stage was set for another resources boom in the early 1980s but it was illusory. The resources boom that we experience today is extraordinary.

During the month of January alone, half of Australia’s sharemarket performance came from three materials companies – no prizes for guessing they were BHP Billiton, Woodside Petroleum and Rio Tinto. Over the past three years, the resources sector has seen share prices rise substantially, and is currently responsible for the major upswing in business investment. So when will it all come to an end??

Well, the value of our resources depends largely on the appetite of the importing countries (and they are at the mercy of their own economic variables).  China continues to be at the forefront of economic growth in Asia.  The Minerals Council of Australia (MCA) predicts that by the end of 2025 the emerging economies of Brazil, Russia, India and China will require twice as much steel, three times as much aluminium and one and a half times as much copper, nickel and oil.  So what’s the problem?

It is important to remember that the resources sector is cyclical, which will not change. This means that as prices rise, supply tends to increase and prices then fall.  And though Australia is the third largest minerals sector (behind the US and South Africa) the risks facing our capacity to meet the demand of these emerging markets in the future – and subsequently capitalise on the commodities super cycle - include infrastructure constraints, production inputs and skills shortages … all issues that Australia is addressing. 

Sources: 
RBA: Statement on Monetary Policy – February 2006
The Minerals Council of Australia (MCA)
www.colonialfirststate.com.au