There's some very strange logic (the playbook) out there about energy and metals. It goes kind of like this (and help me cause it doesn't make sense). Energy prices (and other costs) are high, therefore developing new deposits is problematic. Since they are problematic, ounces in the ground undeveloped have nominal value. In fact, even new mines and production have nominal value. However, since China is slowing down, the playbook suggests an economic downturn will cool commodities.
On the last point, the playbook crowd, apparently hasn't connected the dots: that the primary reason China is slowing down is lack of resources, and shortages, not because of a glut of supply. So it is shortages of critical commodities that is the nexus of China's (and the rest of the world's) problem now. The reason for the shortages is lack of resource development to support a huge developing economy story. In other words you need hens to hatch eggs. However, the market apparently believes you don't need hens (mines) to hatch eggs (metals). It also believes (judging from other sectors in the market), that eggs just sprout like mushrooms in the forest, without effort. Or, even more amazing they believe the world economy really doesn't need eggs at all. It's an imaginary land indeed, and painful to watch. I think it's a perfect prescription for even worsen shortages for years to come.
So the net result is that emerging production or development plays, especially those that are smaller, ended up being priced for very little, right at time when the need for them is most critical. Unfortunately, there doesn't appear to be a T. Boone Pickens, or mining genius on the scene to "take advantage" of the mispricing, and that exposes and makes the "market" subject to stupid playbooks. |
