The super-cycle of commodities and the Lucky Country

China is building at a rate of one new city the size of Detroit every few months and its farming acreage has fallen from 300 million acres to 200 million acres in the last ten years. As a result of this and its huge levels of exports it has transformed demand for base metals and minerals since 2002. During that time the price of nickel, which is used in the manufacture of stainless steel, has risen from US$8,340/tonne to US$41,300/tonne and copper, for electrical goods and cables, has shot up from US$1,690/tonne to US$7,470/tonne. Proof that these prices will not fall back to earlier levels is writ large in Rio Tinto’s recent decision to bid for Alcan, Norilsk Nickel’s acquisition of LionOre Mining International and Xstrata’s purchase of Falconbridge.

It's not only China but India and of course, Japan and those Asian Tigers which, in the shadow of the Indo-Chinese giants we've almost forgotten these days, who are also worrying away at The Limits to Growth.

Australia has whole mountains of high-class iron ore, masses of nickel, copper, uranium and coal, loads of bauxite and all the rest. When we don't have a drought, we can produce masses of food to fill millions more stomachs which, it would seem, their owners will be able to afford to fill, if not right now, then in the months and years immediately ahead.

Modern Australia was built on commodities, and one commodity in particular in the early years - gold. In 1850, after 62 years of European settlement, the population - not counting Aborigines - was only about 400,000. Then in 1851, we found gold and a million new settlers were wielding picks and shovels on the goldfields - or selling picks to some people and buying shovels from others - in the next year or two. Today's second greatest Australian city, Melbourne, was built on gold.

Now perhaps it is all happening again. Even the gold is still there to be mined and could bring in a lot more than today's $US680 an ounce even before this coming Christmas. Indeed, it could be your number one Christmas present to yourself and others. You can buy bars of it from the Mint in Perth any time you are so disposed. What new great city will we build when gold reaches $US2,000 an ounce - or $US5,000 - and nickel hits $US50,000 or 60,000 a tonne?

It will all be like old times. Just as in the 1960s, we won't need any leaders - political, economic, financial - who are "savvy" in anything. The dumbest of leaders will look good.

At the same time, for those of us who have a longer perspective, it will be comforting if we have some influential people who see things beyond a decade or two or a generation or two. The China/India/Tiger phenomenon will not last forever. Indeed, the self-destructive policies of the United States - and of Australia as a sort of little-brother, sidecar passenger - seem to be already reaching a point at which they will demand their penalties, not only for the United States but, to some extent at least, for all of us.

Further on, it is not only "climate change" and "global warming" - however we define them and however they may be caused - but even most importantly The Limits to Growth to which we must pay attention.

The world population has been increasing, not everywhere but in many countries, at a terrifying rate. We're six billion now and forever rising. Fertile land is short and what we have we may have been using in a recklessly profligate fashion. Oil may be "peaking" and water, the most vital resource of all, is short almost everywhere. Water is set to become ever more desperately short as the global population expands and "civilisations" everywhere make more and more demands on supplies which are limited by depending on no more than "what comes naturally". Like most other problems, the water shortage can be solved but we need to be brisk about it if we're to avoid the devastating conflicts which shortage of vital materials tends to provoke.

So, as a rough and ready conclusion, I don't want to be alarmist but while countries like Australia might - just might - be about to return to their glory days, we still haven't found another planet to which some of us might migrate when we've surpassed the limits to what this one is able to provide.