TORONTO (miningweekly.com) – Almost exactly ten years ago, BMO Financial Group strategy advisor Don Coxe correctly forecast commodities were moving into the biggest bull market yet. On Friday, he said investors in commodity markets can still expect at least another two decades of, at least relatively, good times.

“For the next 25 years, commodities will be a really good asset class, but not on the scale of what we’ve had for the last ten years of lift off,” he told Mining Weekly Online.

In the run-up to the 2008 crash, mining executives almost unanimously touted the prospects of a super cycle lying ahead.

Needless to say, there wasn’t much mention of the words for the months following the death of Lehman Brothers. Since commodity prices have staged a rather impressive comeback, talk of super cycles has re-emerged.

Are we in the midst of a so-called super cycle that will last another 10 years?

“I’m not so sure,” said Coxe.

For him, population growth rates in countries such as India and China play a leading role here, as China showed in its rapid rise to become the world’s second biggest economy.

“The super cycle could have been maintained if the demography in China was as favourable as in India,” he commented, referring to the fact that the world’s most populous country has a fertility rate of 1.5, which was edging closer to the 1.3 level that is found in Western Europe.

Once it reaches that level, which could happen in about 20 years, it would mean that each new generation would be 40% smaller than the last. And that means less consumption, and less demand for commodities.

“The demography of China is now starting to look more like the demography of Western Europe. It’s 20 years behind, but now we know how that plays out,” Coxe said.

While India still has a positive demography, he’s not impressed with the government of that country.

One of the commodities standing to benefit greatly from the increased wealth in countries such as China, India and Indonesia, is potash, used to fertilise the soils needed to nourish changing diets.

Producers of the crop nutrient have had a tough time since the end of last year, with Canada’s biggest producers temporarily shutting some of their biggest mines as buyers hold off for lower prices.

Potash Corp, the biggest producer, this week announced it would keep its Rocanville and Lanigan mines closed for up to an additional month – to the end of March.

But CEO Bill Doyle has maintained that the current supply glut will disappear as quickly as it came, with a rapid increase in sales in the second quarter.

Coxe agrees.

“What I believe is you’re going to get terrific sales starting fairly soon,” he commented in a telephone interview.

He said that fertiliser producers’ shares track too closely to the price of corn – if the crop soars in price, so do they.

What the market should rather be following is how much of it farmers will plant.

With corn prices near $6.40/t and the US Department of Agriculture predicting “record acreage this side of World War Two”, thanks to a likely early planting season in the US Midwest, farmers have a lot of good reasons to apply more potash, noted Coxe.

“In terms of earnings this year, the fertiliser companies are going to do just fine, thank you.”

Coxe is also bullish on copper, which he calls “the star of the nonferrous metals”.

Iron-ore, on the other hand, is not so promising.

That China has entered West Africa to produce the steel-making ingredient – which it can more easily transport to its ports once the Panama Canal has been widened – could be the party pooper to the oligopoly that Vale, BHP Billiton and Rio Tinto have enjoyed over the past decade-plus.

Though this will only occur later in the decade, it will allow the Chinese more of a price-setter role than the price-taker one they have been stuck in, and means current iron-ore reserves in the ground should be priced at a discount to what the material is selling at currently, said Coxe.

As for gold, he added to his January musings that producers of the metal are soon to be seen as more precious by markets.

“My view is that this thing has gone to its extreme,” Coxe said of the discount miners are trading at to the price of the gold they have in reserves.
 

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