The perseverance of the ongoing metal and mineral boom

Abstract

Commodity booms are typically of short duration. They are regularly triggered by a spurt in economic expansion and an ensuing upward jump in commodity consumption that, in turn, raises commodity prices. They commonly end when the spurt is followed by a recession resulting in price falls due to shrinking commodity demand. The commodity boom that started in 2004 and that perseveres in 2012 is unusual in its durability. The paper addresses two questions, focusing on metal and mineral commodities. First, how long is a boom likely to be in the absence of a recession that punctuates demand and prices. I conclude that the high price period will then persevere until the new capacity needed to satisfy the higher demand is in place. Given a variety of investment lags and constraints in the input supplying industries, this may take in excess of 10 years, much longer than the 5-year gestation period that is typical in greenfield mineral investments. The second question is why the deep recession of 2008–2009 did not punctuate the ongoing boom. I conclude that, while the world economy was severely hit by the recession, the major emerging economies continued to grow at fast rates. The world recession had little impact on commodity markets because the emerging economies have recently come to dominate global metal and mineral demand.