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

16 ASX stocks to buy and hold forever, updated

This time last year, I highlighted 16 ASX stocks that investors could own indefinitely. One year on, I look at whether there should be any changes to the list of stocks as well as which companies are worth buying now. 

UniSuper’s boss flags a potential correction ahead

The CIO of Australia’s fourth largest super fund by assets, John Pearce, suggests the odds favour a flat year for markets, with the possibility of a correction of 10% or more. However, he’ll use any dip as a buying opportunity.

2025-26 super thresholds – key changes and implications

The ABS recently released figures which are used to determine key superannuation rates and thresholds that will apply from 1 July 2025. This outlines the rates and thresholds that are changing and those that aren’t.  

Is Gen X ready for retirement?

With the arrival of the new year, the first members of ‘Generation X’ turned 60, marking the start of the MTV generation’s collective journey towards retirement. Are Gen Xers and our retirement system ready for the transition?

Why the $5.4 trillion wealth transfer is a generational tragedy

The intergenerational wealth transfer, largely driven by a housing boom, exacerbates economic inequality, stifles productivity, and impedes social mobility. Solutions lie in addressing the housing problem, not taxing wealth.

What Warren Buffett isn’t saying speaks volumes

Warren Buffett's annual shareholder letter has been fixture for avid investors for decades. In his latest letter, Buffett is reticent on many key topics, but his actions rather than words are sending clear signals to investors.

Latest Updates

Investing

Designing a life, with money to spare

Are you living your life by default or by design? It strikes me that many people are doing the former and living according to others’ expectations of them, leading to poor choices including with their finances.

Investment strategies

A closer look at defensive assets for turbulent times

After the recent market slump, it's a good time to brush up on the defensive asset classes – what they are, why hold them, and how they can both deliver on your goals and increase the reliability of your desired outcomes.

Financial planning

Are lifetime income streams the answer or just the easy way out?

Lately, there's been a push by Government for lifetime income streams as a solution to retirement income challenges. We run the numbers on these products to see whether they deliver on what they promise.

Shares

Is it time to buy the Big Four banks?

The stellar run of the major ASX banks last year left many investors scratching their heads. After a recent share price pullback, has value emerged in these banks, or is it best to steer clear of them?

Investment strategies

The useful role that subordinated debt can play in your portfolio

If you’re struggling to replace the hybrid exposure in your portfolio, you’re not alone. Subordinated debt is an option, and here is a guide on what it is and how it can fit into your investment mix.

Shares

Europe is back and small caps there offer significant opportunities

Trump’s moves on tariffs, defence, and Ukraine, have awoken European Governments after a decade of lethargy. European small cap manager, Alantra Asset Management, says it could herald a new era for the continent.

Shares

Lessons from the rise and fall of founder-led companies

Founder-led companies often attract investors due to leaders' personal stakes and long-term vision. But founder presence alone does not guarantee success, and the challenge is to identify which ones will succeed in the long term.

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.