According to many, the commodities boom is over.
It’s time to sell iron ore.
Sell copper.
Sell gold.
Sell oil.
Sell everything. It’s all over; no one will use a single ounce, pound, tonne or barrel of a commodity ever again.
That’s clearly an over-reaction. There will still be demand for commodities. The question is whether the demand is enough to make investing in resource stocks profitable…
The latest chart of the Reserve Bank of Australia’s Index of Commodity Prices paints a conflicting picture.
Is the boom over? Or is it just a pause before the commodities sector kicks off again?
Source: Reserve Bank of Australia
So which is it? The worst thing we can do in this game is sit on the fence and not give you clear cut advice. In which case, we’ll try our best to give you our thoughts on the state of play for commodities today…
There’s Still Life in the Commodities Market
To give you the short answer, it’s not the end of commodities. So if you think you should sell all your commodity stocks, think again.
The world’s economies will always need to build things and make things. And it’s probable that in one form or another there will always be demand for iron ore, copper and aluminium.
China’s plan to build the world’s tallest building, in pre-fabricated form and in just 90 days, is proof that raw materials are still in demand.
Not to mention all the other grand building plans you see around the world and in Australia. Even though the merit of some of these plans is questionable.
And so with these materials in demand there will always be a need for companies to explore for and produce them.
As you’d expect with the laws of supply and demand, the price will move up and down. That means sometimes it will be good to invest in resource stocks, while other times it won’t.
Although there’s one thing we can almost guarantee. Regardless of the market conditions, if an explorer discovers a brand new resource the stock price will likely take off in a flash. So don’t write off resource stock investing just yet.
In fact, our bet is that now is a perfect time to buy resource stocks while most other investors run scared.
But as important as the big bulk commodities may be, the really exciting ‘commodities’ are anything but bulk. These are the commodities operating at the other end of the spectrum. We’re talking about nano-materials…
Thinner Than a Human Hair, Stronger Than Steel
This is a subject we covered in the latest issue of Revolutionary Tech Investor. It’s the idea of a revolution in the materials used to manufacture large and small goods.
But don’t assume that large goods mean ‘large materials’. Because the reality is that the auto and aerospace are two of the leading industries involved in the development of nano-materials.
So, what are nano-materials? To put it simply, they are materials that you can measure in millionths of a millimetre. A great example is this image of a carbon fibre strand. And although technically speaking carbon fibre isn’t a nano-material, it gives you a clue about how important these materials could become over the next few years:
Source: Carbonfibredesigns.com
The white strand running from top left to bottom right is a human hair. The black strand running from bottom left to top right is a carbon fibre strand.
But despite carbon fibre being just a fraction of the size of a human hair, it’s five times as strong as steel, twice as stiff, and much lighter than steel.
What’s more, it’s resilient to heat and doesn’t expand and contract like steel under extreme temperatures.
This is why the auto and aerospace industries have led the way with innovation into the use of carbon fibre. If they can replace the chassis and body of cars and planes with carbon fibre, not only does it lighten and strengthen the structure, but it improves fuel efficiency too.
But that’s not the only area where nano-materials (or micro-materials in the case of carbon fibre) are set to have a major impact.
Commodities Boom in a Science Lab
As the BBC reports:
‘The first computer built entirely with carbon nanotubes has been unveiled, opening the door to a new generation of digital devices.
‘“Cedric” is only a basic prototype but could be developed into a machine which is smaller, faster and more efficient than today’s silicon models.‘
In short, carbon nanotubes are made from a single sheet of carbon that is one atom thick, and when rolled into a tube provides an incredibly strong structure.
But it’s not just its strength that appeals to scientists. Its conductivity makes it an ideal alternative to silicon in the microchip industry.
In an industry where size is important, the nano-scale size of carbon nanotubes is a key development. The more transistors that can fit on a micro-chip the greater the computing power.
If you’ve heard of Moore’s Law you’ll know that microchip processing power doubles every 18-24 months. Well, if microchip makers can reduce the size of transistors at the atomic level, it stands to reason they can increase the number of transistors and therefore the computing power.
Again, to put this in context, a human hair is about 100 microns (one micron is equal to 1,000 nanometres). The latest silicon chips are about 22 nanometres. The single carbon nanotubes used in ‘Cedric’ are about 1 nanometre.
In other words, a human hair is approximately 100,000 times thicker than a carbon nanotube. That makes carbon nanotubes invisible to the naked eye. But more importantly to the micro processing industry, carbon nanotubes are 22 times thinner than existing silicon chip technology.
In short, when you think about commodities in the future, you need to think more than just iron ore, copper, steel and oil. The future commodities are just as likely to be the product of a science lab in Silicon Valley as they are of a mill or foundry in China’s industrial heartland.
Cheers,
Kris+
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