Metals put to the test

That said, the past decade - and the last three years in particular - has brought unprecedented rises in the prices of these key building materials, largely on the back of staggering demand growth in China. As most of the developed world dived deep into recession in late 2008, the Chinese government launched a $650bn (£400bn) stimulus package that fast-tracked enormous infrastructure projects across the country - ensuring the Chinese economy, and therefore demand for industrial commodities, remained red hot.

Now, with most of those projects completed, and with the Chinese government having engineered a slowdown to curb back what it deemed was excessive growth, demand for raw materials like steel in China has significantly cooled. So much so, in fact, that the prices of iron ore and coking coal recently plunged by 40 per cent in a matter of months - plumbing depths not seen since 2009.

Recently announced quantitative easing by several central banks, however, and a $174bn infrastructure spending spree announced by China, have brought prices back from the brink. Yet demand for these industrial commodities seems unlikely to experience the dramatic rises in the next several years as we've seen in the past few. China seems unlikely to approve the same vast levels of government spending in order to combat rising inflationary pressures within the country. As John Meyer, the much-respected head mining analyst at Fairfax, recently wrote in a note to clients: "The imbalance which drove iron ore prices to record levels is unlikely to be seen again, as new supply and slower demand combine to form a better balanced market… Coking coal, manganese, nickel, ferrochrome and other related metals may continue to suffer as steel producers adapt to lower steel prices following the oversupply of metal this year."

Indeed, supply-side factors may well end up dominating industrial commodity prices going forward as demand growth becomes somewhat more stable. Here, one merely has to look at the scarcity of different metals and minerals to see which have the best chances of outperforming. There is an overwhelming shortage of good-quality copper, zinc and coking coal deposits worldwide despite the significant investment in exploration over the past 10 years - and our long-term outlook for these commodities is correspondingly positive. Conversely, large and rich deposits of iron ore and thermal coal (coal used in power plants) can be found in abundance throughout much of the world - they just usually require large capital investments to develop. Our long-term outlook for these materials is consequently neutral to bearish, as many iron ore and thermal coal projects have been steadily advanced over the past few years and will soon come online or are ramping up production already. Surplus mine capacity could, therefore, be a feature of the new market for iron ore.

Newly revised forecasts from the Australian Bureau of Agricultural and Resource Economics mirror this. It estimates total iron ore imports by China this year will be 672m tonnes, down 2 per cent on 2011. For 2013, it expects a slight rise in imports to 683m tonnes - however, that is expected to be accompanied by a decrease in prices to $101 a tonne from an average of $126 a tonne this year.

Commodity prices: long-term gain, short-term pain

VIEW OUR ANALYSIS ON THE FOLLOWING COMMODITIES:

■ Platinum

■ Uranium

■ Gold