Saturday, May 1, 2010

How lucky are we?

How lucky are we?
I snapped a iPhone photo of this graph from an Australian newspaper (Australian Financial Review) a few weeks ago and am now tracking down the sources cited.  In the meantime - living in Western Australia (WA) and looking at the effective Real Prices quoted - we would have to be thinking - how lucky are we to be sitting on significant quantities of mineral and energy resources and to be so close to the growing power of China and North Asia? The hype is huge and everyone in WA has stories of multi-million dollar contracts being let for roads and infrastructure and stories about rapidly escalating house prices and the congestion at Perth airport.  The share registries of our small and medium resources companies are being pored over by fund managers looking to get exposure to commodities in a politically safe environment.  This investment has included sovereign wealth money from China - similar to Chinese investments in energy and mineral assets in Africa and Latin America.
Yes - we are lucky to be here in this hot spot at this cycle in our history.  However, the problem with having lots of base metals is that other places have them too - and ultimately it is a price game in a market where more supply can be brought on very quickly.  And we have a high cost base compared to Africa and Latin America.
I am much much more excited by the upswing in the red curve - which tracks the rebound in demand for food commodities.  As Asia builds cities over it’s productive coastal agricultural land and starts to run out of water - this is where Australia’s competitive advantage will start to build sustainable value - because Australia is one of the most efficient sources of food production in the world - and without the benefit of government subsidy.  

Food and water assets don't yet excite the stock analysts - but they will.

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