Australian investors need to look beyond recent commodity price falls and BHP Billiton's comment that its development plans are being down-sized. It is not BHP, Rio and the other whales that are most exposed, but smaller miners and mining hopefuls that have higher production costs: if prices stay down, they could resemble dot.com stocks after the collapse of that boom in March 2000 - cashed up, with nowhere to go.
Renewed concerns about Europe's sovereign debt crisis and moderate alarm about growth in China has thumped commodity prices this month: as of yesterday, gold was down 7.1 per cent, oil was almost 9 per cent lower, copper was down more than 9 per cent, and iron ore prices were off 7.1 per cent.
They are hefty moves, and as the accompanying table shows, commodities are now well below their 2012 highs: almost 10 per cent lower in the case of iron ore, between 12 and 13 per cent lower in the case of gold, oil, aluminium, copper and zinc.
The best measure though is how far prices are below highs set in the first half of last year, before the European crisis expanded for a second time. Of the major commodities, only gold and oil have fallen by less than 20 per cent. Copper has lost a quarter of its value, iron ore prices and aluminium prices are down by almost 30 per cent, and nickel is down a stonking 42.1 per cent.
With the exception of aluminium and nickel, prices are still well above pre-boom levels. Iron ore, copper and gold are still more than 300 per cent above their average price in 2003.
Prices are less strong in Australian dollars, the currency Australian investors use to harvest their local mining company investments, with share sales, say, or through dividends. The $A began 2003 at US56.16?, and averaged US65.3? for the year. Its appreciation since then almost halves $A receipts on $US denominated commodities (which is all of them).
China's demand for Australia's commodities is also going to grow less aggressively in the next decade as its economy matures, and as Europe's debacle continues the big question mark is over mid-sized and small resources companies.
BHP and its peers including Rio Tinto are trimming their development budgets, but they are the lowest-cost, largest producers and will still post healthy profits - in the process crowding out smaller, higher-cost producers or potential producers that emerged in the first phase of the boom.
Many juniors are now sitting in projects that need to be delayed at least and, if prices stay low, may not go ahead at all. They are potentially in the same position as the dot.com hopefuls in 2000: with money raised, but no way to redeploy it profitably.
Dot.coms slowly died as their cash burned away, and some smaller miners will go the same way.
Investors looking to weed their portfolios should first consider what commodities they are exposed to. All of the industrial commodities are vulnerable if global growth and commodity demand slips, of course: concerns about Europe and China have dragged prices lower for that reason. But aluminium and nickel are particularly challenged, by production overhangs that will exist for years.
Aluminium's over-supply problem is the nastiest. Goldman Sachs analysts Malcolm Southwood and Christian Lelong say in a report this week that 2012 will be the the sixth successive year of aluminium surpluses.
"Demand is not the problem," the duo observe. Consumption rose by almost 4 million tonnes to 44.9 million tonnes last year - but production also rose, by 3.7 million tonnes, as low cost Chinese smelters ramped up, and the aluminium surplus stayed high, at 719,000 tonnes, 55 days' consumption.
A rising US dollar is another issue for commodities, and gold is particularly vulnerable.
US dollar-denominated commodities automatically rise in price when the US dollar falls, and fall in price when the US dollar rises, and gold's rise from $US700 an ounce in November 2008 to a high of $US1900 an ounce in the first week of September last year was powered in part by investors buying gold to protect themselves from (and punt on) a decline in the value of the US dollar. The metals attraction as a safe-haven was undermined by its vertigo-inducing climb, however, and the US dollar is the safe haven of choice now. It's risen by 14 per cent against the euro in the past year.
Investors who bought into smaller iron ore prospects also need to work out when they will actually be producing, because the super-profits window is closing. BHP's chief executive, Marius Kloppers, said this week that Chinese demand for iron ore was softening as China's economy transitioned from being construction-oriented to consumer-oriented.
He said the market and iron ore prices would be flat from 2025 onwards - but the global iron ore market will actually move into structural surplus around 2016. BHP and Rio will continue to make money out of their low-cost Pilbara mines after that: smaller and more marginal projects will be sidelined.