The Commodity Supercycle Decelerates – by Ari Charney (Investing Daily – May 22, 2013)

This week offered a flurry of news signifying the end of Australia’s resource boom. Of course, that doesn’t mean the mining space won’t rebound in the years ahead. Commodities are famously volatile, and the steep correction that inevitably results from overinvestment and a glut of production will itself eventually correct.

But in the near term, the sector is definitely contracting. Even the uber-wealthy are hurting. Pundits have delighted as porcine plutocrats Nathan Tinkler and Gina Rinehart watched their fortunes drop precipitously over the past year. Tinkler is now merely a former billionaire, while Rinehart’s wealth declined by a staggering AUD7 billion, to AUD22 billion, over the past 12 months.

Their plight might be more entertaining if Australia’s economy weren’t so dependent on the mining industry. The Bureau of Resources and Energy Economics (BREE) recently detailed a significant increase in projects being deferred or cancelled, as well as a decline in investment for exploration. Altogether, roughly AUD150 billion in projects have been delayed or cancelled over the past year.

However, there are still AUD268 billion in projects at the committed stage, which is near record-high levels. Of course, the BREE notes that 11 percent of that figure is due to cost increases. Even so, the agency projects that committed investment will fall by just AUD8 billion next year, a number that supports the Reserve Bank of Australia’s forecast that resource investment would peak this year, but that the peak would be sustained over a number of months.

Most of the 73 projects that are under construction are valued at over AUD5 billion each, with 40 minerals projects, 18 gas and petroleum projects, and 15 infrastructure projects.

Meanwhile, fourth-quarter spending on greenfield exploration projects fell 16 percent sequentially, to AUD264 million.

The mining services industry has been especially hard hit. Unlike miners, these companies don’t own resources to backstop their valuations during periods when revenue is scarce. Over the past three months, stocks in this sector have fallen by 35 percent, erasing AUD17 billion in value. Over that same period, by contrast, the S&P/ASX 200 is off just 1.9 percent on a price basis.

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