There are many challenges to passing high-level, one-size-fits-all judgements on the state of the mining sector.

There are a number of commentators that either declare the mining boom to be already over or just about to enter a new growth phase.

Neither group of proponents is entirely right or wrong in its assertions.

All face the same dilemma that commodity prices and mining margins do not all move up and down synchronously.

Certainly we have witnessed a China-led commodity-wide boom since the turn of the century – but when it comes to the price of metals and minerals, they can be simultaneously night and day.

Don’t believe me? Just ask those companies in the uranium sector versus those in say copper or iron ore right now.

So for some metals and minerals the sun may well be shining at a given point in time – whereas for others the better analogy refers to the dark of the night – or at least to twilight.

To help highlight and explain these contrasts, CRU Group has developed a commodity heat chart* – which determines whether future prices for specific commodities will either heat up (rise) or cool down (fall).

The heat chart has its limitations, however – with forecast percentage changes in prices not specifically linked to (or indicative of) the relative margins available at given points in time across the commodity spectrum.

The commodity sundial overcomes some of these limitations – describing the microeconomic forces at work as the mining business cycle plays out separately for each commodity.

That is, the four stages of the day are a useful analogy – here dawn, noon, evening and twilight.

In a commodity price context, the day evolves as follows:

Dawn – commodity among those viewed as the “next big thing”

• Price at around long-run marginal cost (equilibrium level)
• Solid producer margins attracts interest
• Strong and easily understood demand story. For example, Chinese growth, technology led demand, light-weighting
• Supply concerns on tightening market
• Market opportunity for early movers.

Noon – commodity considered “hot”

• Price above the cost curve
• Record producer margins (price-driven), particularly in the 1st and 2nd quartile
• Producers focus on volume growth over cost control
• Consumers respond via substitution and economisation
• Reliability of supply an industry issue
• New production technologies, low grades, tailings rework all considered “viable”
• A market optimism that proclaims market conditions as “the new normal”

Evening – commodity still in favour – but doubters emerge

• Prices gradually eroding
• Strong margins (volume-driven)
• Demand growth solid but not spectacular
• Supply growth rates meet and exceed demand expectations
• As short-term signals weaken optimists have to rely on “medium-term fundamentals” to maintain optimism.

Twilight – commodity out of favour

• Prices well down “into” the cost curve, 3rd and 4th quartile assets fight for survival with state owned “protected” assets
• Margins squeezed across the industry
• Producers sacrifice volume for cost reductions
• Demand-side, even if healthy, fails to influence price
• Supply growth and future expectations far higher than demand growth
• Supply (and stocks) overhang
• A market pessimism that proclaims market conditions as “the new normal”

So where are the different commodities right now? You guessed it – it depends.

Iron ore and copper are enjoying a long balmy evening.

Conversely, uranium and nickel are very much in the twilight zone, zinc and metallurgical coal both wait for their new dawn– whereas tin is perhaps approaching noon already.

Simple really isn’t it? So is the mining boom over then?

It depends, of course, upon the specific commodity for which the question is being asked.

Good hunting.

Allan Trench is a professor of mineral economics at Curtin Graduate School of Business and professor (value and risk) at the Centre for Exploration Targeting, University of Western Australia, a non-executive director of several resource sector companies and the Perth representative for CRU Strategies, a division of independent metals and mining advisory CRU Group (allan.trench@crugroup.com).

Paul Robinson joined CRU in 2005 following a 12-year career in the power sector. He has been director of multi commodity projects since 2012 and he is focused on developing a number of cross-commodity services for CRU. He is a member of CRU’s executive team based in London (paul.robinson@crugroup.com).

*The most recent CRU Group Heat Chart formed the basis for the Strictly Boardroom of September 23, 2013 – namely “2017 Commodity Prices Meets the Soccer Premier League” – http://www.miningnewspremium.net//storyview.asp?storyID=801574222&section=Strictly+Boardroom&sectionsource=s176