Xstrata: Commodity bull run to continue
According to Xstrata (LSE: XTA.L) CEO Mick Davis, commodities are set to resume their bull run as demand for raw materials outstrips the ability to supply them.
Davis said: "In my opinion, the medium term outlook for commodity demand remains very promising, driven by the ongoing urbanisation and industrialisation of high-growth, populous economies, with China and other industrialising countries taking active steps to rebalance their economies towards domestic consumption-led growth over the next decade."
While I believe that's a true statement, Davis is obviously communicating it in response to the huge drop in annual profits it reported for 2009, which plunged by 41 percent from the year before.
Much of his hope and optimism stems from China and other emerging markets which in the building up of their domestic infrastructure which will require huge amounts of materials to accomplish.
Of course if there is more demand than supply can meet, there will be an inevitable rise in prices, which would be a huge positive for the company.
Overall revenue declined by 16 percent to $23.53 billion from 2008, showing it was the low prices of commodities which caused the 41 percent drop in prices, although demand was an ongoing part of the picture, while managing costs weren't able to turn profits around.
Xstrata: Commodity bull run to continue
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