Technical University Munich Commodities as an Asset Class - risklab

2.1 The different Commodity Types
went to China in 2005. 24 Rising prices are highly correlated with a falling stock of
inventory. Pushing production in metals markets is neither easy nor quick. New
mines have to be cultivated and infrastructure in processing and transportation
has to be built. This is mostly combined with environmental sanctions which to
get can last for years, especially in industrial countries. Because of the low margins
during the 1980th and 1990th the industry didn’t invest yielding into capacity bottle
necks at the beginning of the 21rst century followed by the biggest price surge in
metals markets ever. Industry’s huge gains of the last five years were invested in an
acquisition relay, so that today only a couple of mining giants, including Rio Tinto,
BHP Billiton and Anglo American, rule the market. No other industry went through
such a fundamental structural change. Buying other companies means buying their
mines and knowing what you get for your money. Self exploration projects are by far
more risky. But now where only the big survivors are left and demand still exceeds
production, the industry need to go down the traditional road: Rio Tinto will invest
three billion US dollar in both years 2006 and 2007. BHB Billion will invest 12
billion in the exploration of new mines. But this can last until five to ten years and
even more caused by the reasons mentioned introductory to this section. 25
Moreover, the industry faces further problems with machinery and educated staff.
While many geologists needed to drive taxi during the 1990th they account to the
most questioned employees, today. The waiting times of Caterpillar, Komatsu and
Liebherr for the giant trucks, costing around three million US dollar and needed to
transport the raw ores in the mining sites, are around 18 month and were supplied
partly without wheels because its producers Michelin and Bridgestone are still afraid
to extend their production.
Although, there is no end in sight in metals reserves because not all mines are
explored yet, putting all these factors together the agers for a long period of high
metal prices is given. Appendix B.4 to B.8 will further give a small inside into the
production and consumption structure of some selected metals including aluminium,
copper, lead, nickel and zinc.
2.1.3 Agricultures
The agricultural market is the most heterogenous market of the three main commodity
groups. Figure 2.1 introduced its three sub groups: softs, grains and livestock.
While energy and metals already went through a huge price surge, agricultures, with
24 See [Commodities 2006].
25 See [Commodities 2006].
21