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Strategies & Market Trends : Commodities - The Coming Bull Market
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To: Sturgeon who wrote (824)10/2/2001 11:30:47 AM
From: russwinter  Read Replies (1) of 1643
 
<Can there be a long term rise in production concurrently with a "hollowing out" of capacity? >

The operative variables are lead times and depletion. The reason so much "profitless" production has remained in place are the old projects brought on stream by the "mini-booms" earlier in the 90's, and in the 1996-97 period. But if you look at most operating mines and deposits it is not the norm to find many with long life reserves behind a decade or so. So many metal mines brought on line in the 1990's, are increasingly nearing the end of the rope and are NOT being replaced. The other supply risk that does not get nearly enough attention is sovereign risk. The so called safe sources (US, Canada) tend to range in attitude somewhere between hostile at worst, to neutral at best on resource development issues. That leaves sources like Indonesia, South Africa, Russia, the Middle East as the suppliers of key commodities. With current inventories where they are, and against the backdrop of long term depletion issues, it's not to hard to envision (irrespective of economic conditions and growth) a fat tail event in any number of resource commodities. That's the Jimmy Rogers argument.

My particular interest is gold mining and I've really looked at mine lives there. It's like an iceberg melting.
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In terms of resources in general, it is rather obvious little new capital is being applied, and new production doesn't just sprout up like mushrooms in a forest. You need to have capital, expertise, and strong organizations to find and exploit it. And those elements are in severely short supply.

Cost curves and inventories:
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