RESOURCES

In the midst of the world’s biggest resources boom it’s difficult to not get carried away with the momentum of ever higher prices. But commodity prices have a history of volatility and tendency to revisit a long term downward trend. The reasons are somewhat obvious. Price spikes stimulate new investment, sometimes massive new investment with higher productivity that can compete at lower prices. When the downturn comes from this increased supply, often triggered by a simultaneous demand downturn from a shift in the business cycle, production tends to be maintained and so prices fall. It would, however, be a ‘very convenient’ development if oil prices stayed high so that substitutes and demand can be brought into alignment with the reality that we are past ‘peak production’ and need new technology and better demand management in the interests of a sustainable future.