LAUNCESTON, Australia, Feb 23 (Reuters) – Anytime you hear the mantra “this time it will be different,” it’s probably best to assume the same old cycle will repeat itself.
This is especially true for commodity producers, who often appear to lurch from boom to bust and back to boom with little regard for learning from past mistakes. Perhaps this is because commodity cycles can take decades to play out, meaning institutional memory is lost over time, allowing executives to repeat the mistakes of their predecessors.
But more likely it’s because most chief executives in listed commodity majors are either forced by investors to be seen doing something to boost growth, or by nature are driven to build and buy new mines.
The strong gains in many commodity prices last year, including a doubling of iron ore and coal, have given rise to optimism within the industry that the down cycle in commodities is finally over after five long years of falling prices. Assuming this optimism is justified and prices are at the start of new up cycle, how should commodity producers respond?
In the down cycle that started in 2011 most companies responded by cutting costs to the bone and curtailing exploration, while also boosting output to lower the outlay per unit produced.
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