I'm glad I achieved my objective.
I'm glad I achieved my objective.
What ANZ report? The one my mate wrote by copying sources from all over the place and calling me up at 7pm asking if I had any company intel to send him so he can take some paragraphs out? Haha
Though on your point re companies reinvesting a lot of money in to the mines, well last I heard, Citi/Bank of America/Bear Sterns/Lehman/Merrill Lynch also put a lot of money in to USA real estate. Oh and so did all these companies during the tech boom. Not sure where half of these companies are now. Oh yea, bankrupt.
But hey, we're just trying to be entrepreneurs, not economists. So who cares? As long as I milk it for what it's worth.
Yes LNG - I'd tread wearily if you are involved in things like that. When something sounds too good to be true, think tech boom.
In fairness to them they are only going to make the same mistake the market makes every single time we have an undercapacity.
Industrial cycle around ore;
Things chug along with people producing iron ore and recieving a price which gives them a fair profit but not enough to justify new capex.
Over time capacity is retrenched naturally as ore bodies are exhausted or perhaps high cost miners from the last boom go bust.
Generally quite suddenly capacity can not meet demand and like flicking a switch production costs have nothing to do with the price set by the market. It detaches and price can go anywhere, where the strongest buyer pays whatever he must to secure his ore. I recall North ltd advising us shareholders this was about to happen when they were rejecting RIOs bid in 2000. Wish I'd listened to them and bought every iron ore miner then and told RIO to get stuffed (not that my holding would make any diff )... this is when you buy miners though that end of the cycle. Will be waiting 15 odd years or more for that to play out. This might be my retirement play when I get to 55 odd...
During this period where increases based just on demand with costs of production irrelavant capacity the only supply side driver, miners can recieve 200% or more margins on their existing production but here is the rub it takes 5 years or more to get from a known ore body to production. Expansions are quicker but this is often only countering the retracement of capacity around existing mines being exhausted.
The thing is every single miner whether it be Rio, BHP, Reinhardt or FMG all have the same idea, lets double our capacity, lets triple it... And who wouldn't when you can make 200 or 300% margin on production. It stacks up very nicely indeed. But this happens every blinking time the commodities cycle happens. I don't need to look at Chinese demand, just look at how much more bloody ore we expect to export in 2015 -16, Unless the chinese start eating the stuff instead of rice it aint sustainable at all.
I have heard bankers say, mining is not bloody cyclical, finance is. I wonder if the missing ingredient is history lessons. Just because we had a GFC and finance got smashed and mining didn't does not make mining a non cyclical industry.
Anyway the very moment global capacity meets demand again like flicking a switch price falls to around marginal costs of production, any less mines close. This is not enough to sustain capex, and may not be enough to sustain high cost players either under the marginal cost of the qty demanded by the market at the market price.
Then it is the long wait for capacity again to retrace with insult added to injury with capacity continuing to come on line from mines which were too far built to be pulled from production. i.e. capacity may continue to grow long after it is a good idea to be investing in new ore mines (Rather like units in Melbourne now, eh ).
For me it is like night coming after day. It has happened to everything from gold to iron ore to tulips and has been an understood phenomenon in market economies from the time of Adam Smith and yet it is just one of those things about markets, you have to take the bad with teh good sometimes. Anything with a lead time in capacity building, if prices exceed costs by too great a margin capacity grows to a point that causes price to fall again.
It takes around 1.5times the length to build new capacity for this to play out... now how long does it take to build an iron ore mine? OK 3 odd years but say you are relying on rail and new ports, car dumpers etc, than perhaps about 6 years with all the stuff around approvals to draw water etc? What do you reckon this boom started in about 02-03 in earnest? I reckon we got lucky again in the GFC otherwise I would have expected the fall before now. Hard to say exactly when it will come but I am certainly not confident of being involved in building mining infrastructure beyond the next few years.
Industrial cycle around ore;
Things chug along with people producing iron ore and recieving a price which gives them a fair profit but not enough to justify new capex.
Over time capacity is retrenched naturally as ore bodies are exhausted or perhaps high cost miners from the last boom go bust.
Generally quite suddenly capacity can not meet demand and like flicking a switch production costs have nothing to do with the price set by the market. It detaches and price can go anywhere, where the strongest buyer pays whatever he must to secure his ore. I recall North ltd advising us shareholders this was about to happen when they were rejecting RIOs bid in 2000. Wish I'd listened to them and bought every iron ore miner then and told RIO to get stuffed (not that my holding would make any diff
)... this is when you buy miners though that end of the cycle. Will be waiting 15 odd years or more for that to play out. This might be my retirement play when I get to 55 odd...During this period where increases based just on demand with costs of production irrelavant capacity the only supply side driver, miners can recieve 200% or more margins on their existing production but here is the rub it takes 5 years or more to get from a known ore body to production. Expansions are quicker but this is often only countering the retracement of capacity around existing mines being exhausted.
The thing is every single miner whether it be Rio, BHP, Reinhardt or FMG all have the same idea, lets double our capacity, lets triple it... And who wouldn't when you can make 200 or 300% margin on production. It stacks up very nicely indeed. But this happens every blinking time the commodities cycle happens. I don't need to look at Chinese demand, just look at how much more bloody ore we expect to export in 2015 -16, Unless the chinese start eating the stuff instead of rice it aint sustainable at all.
I have heard bankers say, mining is not bloody cyclical, finance is. I wonder if the missing ingredient is history lessons. Just because we had a GFC and finance got smashed and mining didn't does not make mining a non cyclical industry.
Anyway the very moment global capacity meets demand again like flicking a switch price falls to around marginal costs of production, any less mines close. This is not enough to sustain capex, and may not be enough to sustain high cost players either under the marginal cost of the qty demanded by the market at the market price.
Then it is the long wait for capacity again to retrace with insult added to injury with capacity continuing to come on line from mines which were too far built to be pulled from production. i.e. capacity may continue to grow long after it is a good idea to be investing in new ore mines (Rather like units in Melbourne now, eh
).For me it is like night coming after day. It has happened to everything from gold to iron ore to tulips and has been an understood phenomenon in market economies from the time of Adam Smith and yet it is just one of those things about markets, you have to take the bad with teh good sometimes. Anything with a lead time in capacity building, if prices exceed costs by too great a margin capacity grows to a point that causes price to fall again.
It takes around 1.5times the length to build new capacity for this to play out... now how long does it take to build an iron ore mine? OK 3 odd years but say you are relying on rail and new ports, car dumpers etc, than perhaps about 6 years with all the stuff around approvals to draw water etc? What do you reckon this boom started in about 02-03 in earnest? I reckon we got lucky again in the GFC otherwise I would have expected the fall before now. Hard to say exactly when it will come but I am certainly not confident of being involved in building mining infrastructure beyond the next few years.
I am a bit like that, always cautious when things are going too well, but I guess if you can make hay while the sun shines do it.
You can always do the public sector job when the SHTF. My fear is though when 2000 other civil engineers coming back from the mining sector all go for the same 3 local government GM positions up for grabs each year you are going to have an uphill battle getting one though.
Maybe better to jump the gun and move now before the rush...
I am seriously considering it with the pay hair cut and all.
the thing with this logic that we can look to the past to learn for the future and the ol smug "yeh sure it' different this time" is yes in fact it is different this time. IMO the world has never been a more dangerous place. At the end of WWII nothing was really fixed up properly. Now we have an exponential global population boom with a ravenous desire for limited commodities and the global cop is beaten up and so broke he can't even fix his black and white. We can't keep going like we have so we can't keep having cycles like we have had. The GFC saw oil prices fall - there will come a day where oil prices will rise despite falling demand
why would you do that now? things havent even really started to get as much as luke warm yet. Gees I'd hate to go on holidays with you guys - day 1, this is great, day 2, hmm this is too good, must be a tsunami due soon
I know.
There is likely plenty of hay to be made between now and whenever this thing does run its course.
Upon reflection, probably in your own job it is better to just react when it comes time rather than jumping at shadows and if proven wrong spend the next several years in a government job earning 30-40% less than your peers just for job security which you never really needed anyway.
Yep you guys are spot on.
In fact I can tell you many entrepreneurs from mining barons to executives such as ones from banking know at some point you'll all be hit, and hit hard. Only mums and dads think mining is going to last another 20 years, hah!
The only reason we're still investing heavily is, why act like a crybaby like Steve Keen while it's flying? Let's just try and spend more capex, get more finance, make more quick bucks before the commodity prices crash etc. Because you know what, when it all comes crashing down most of these guys - even 22 year olds- would've worked a few good solid years getting paid $200-300k. Do you think I really care Joe Blow is going to lose his job and his house is going to be worth half its value and he can't sell it because if it does he is bankrupt? Nope, I just want to see what my bonus is in December. Will certainly help pay off another IP so I can ride through any crashes.
PS: I do have sympathy, but just saying this is how the world operates.
In fact I can tell you many entrepreneurs from mining barons to executives such as ones from banking know at some point you'll all be hit, and hit hard. Only mums and dads think mining is going to last another 20 years, hah!
The only reason we're still investing heavily is, why act like a crybaby like Steve Keen while it's flying? Let's just try and spend more capex, get more finance, make more quick bucks before the commodity prices crash etc. Because you know what, when it all comes crashing down most of these guys - even 22 year olds- would've worked a few good solid years getting paid $200-300k. Do you think I really care Joe Blow is going to lose his job and his house is going to be worth half its value and he can't sell it because if it does he is bankrupt? Nope, I just want to see what my bonus is in December. Will certainly help pay off another IP so I can ride through any crashes.
PS: I do have sympathy, but just saying this is how the world operates.
Agreed - that's why I'm waiting on the bonus to pay off another IP after I come back from holidays in November.
I think that's a misrepresentation of his views. He was calling for more interest rates rises due to inflation (I disagreed with his call on this, but anyway) and at that time he was saying property would continue to track sideways or down if interest rates continued to rise.
But now that it looks like rates will be cut, he has pointed out that property should do well in that environment. It certainly did very well last time rates were cut.
I think he calls it as he sees it, and his calls have been pretty accurate - certainly much more accurate than those of the prominent doomsayers like Steve Keen, Jeremy Grantham, Harry Dent etc.
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