Are we heading for a new ASX resources 'supercycle'?

Are ASX resources shares like BHP Group Ltd (ASX: BHP) headed for a new resources 'supercycle'? These fund managers think so

Capex business spending Surging ASX share price represented by the word BOOM written on bright yellow background

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Any Australian of age would remember the 'mining booms' of the past 2 decades. This was the term referring to several periods over the 2000s and early 2010s when commodity prices were far above historical averages.

Especially iron ore, coal, gold and oil. All commodities that Australia has a fortunate natural abundance of.

Back in 2007 and 2011 especially, it was this 'commodities boom' that many economists have credited for keeping the economy afloat during the global financial crisis. As well as pulling the Australian economy out of the economic slump that followed.

That's why back in 2007, the big ASX resources companies like BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO) were smashing all-time highs. In fact, Rio has never been at the heights that it reached in 2008 again. But it is getting awfully close of late.

ASX resources shares have been some of the better performers on the S&P/ASX 200 Index (ASX: XJO) in 2020. Take Fortescue Metals Group Limited (ASX: FMG). It has surged more than 117% in value over 2020 so far. And BHP and Rio are approaching levels we haven't seen in a decade. BHP shares themselves are up almost 183% since February 2015.

A new ASX resources 'supercycle'?

So what's going on here? Well, reporting in the Australian Financial Review (AFR) this week suggests we could be on the verge of a resources 'supercycle'.

The report states that BHP, Rio and Fortescue are responsible for half the gains of the ASX 200 in December so far, not bad considering the index is up 2.1% since the end of November.

The AFR quotes AMP Limited (ASX: AMP)'s AMP Capital portfolio manager Dermot Ryan as saying: "These guys are making better margins than Louis Vuitton does on his handbags at the moment. The stimulus that's coming in and the global synchronised recovery means we're seeing higher commodity prices right across the board."

Mr Ryan notes that many dividend-hungry ASX investors are expecting bumper shareholder payouts from ASX resources shares in February next year, and are buying in to secure a piece of these cash flows:

"Many of these producers are capable of paying out massive dividends so we're expecting the potential for very large returns from this space. There's potential for off-market buybacks too," the AFR quotes him as stating.

Luke Smith, portfolio manager at Ausbil Investment Management agrees. The AFR quotes him as saying:

We think we're entering the early stages of a multi-year bull cycle for resources and the backdrop is extremely positive… China's economy is clearly very strong at the moment and when you combine that with the rest of the world, which is going to benefit from unprecedented stimulus, the backdrop is looking extremely compelling…

Not only is it a windfall environment for commodities, it's a windfall environment for investors too and the real winners at the moment are the shareholders.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Resources Shares

A man wearing a hard hat and high visibility vest looks out over a vast plain.
Resources Shares

Can a new leadership team turn Mineral Resources around?

Down 50% in a year, is the Mineral Resources share price primed for recovery?

Read more »

Female miner in hard hat and safety vest on laptop with mining drill in background.
Resources Shares

Up 29% in a year, are Lynas shares still a good buy today?

A leading expert delivers his verdict on the outlook for Lynas shares.

Read more »

Miner and company person analysing results of a mining company.
Resources Shares

BHP share price tumbles amid $66 million legal hit

ASX investors are bidding down the BHP share price today. Here’s what’s happening.

Read more »

Three miners looking at a tablet.
Resources Shares

Here's the BHP dividend forecast from top analysts through to 2029

How big could the dividends be in the coming years?

Read more »

Female miner smiling in front of a mining vehicle as the Pilbara Minerals share price rises
Resources Shares

Forget BHP and CBA shares and buy these 4 promising ASX All Ords stocks instead

A leading fund manager expects these quality ASX All Ords stocks will outperform CBA and BHP into 2026.

Read more »

Man pointing at a blue rising share price graph.
Resources Shares

Up 275% in a year, why this ASX All Ords mining stock could keep racing higher into 2026

A leading fund manager forecasts more outperformance to come for this rocketing ASX All Ords miner. But why?

Read more »

Image from either construction, mining or the oil industry of a friendly worker.
Resources Shares

Why is the BHP share price smashing the benchmark today?

BHP, Rio Tinto, and Fortescue shares are all racing ahead of the ASX 200 on Thursday. But why?

Read more »

a man sits at his desk wearing a business shirt and tie and has a hearty laugh at something on his mobile phone.
Share Market News

Broker tips big upside for these ASX materials shares

Two materials companies have earned a recommendation from this broker. 

Read more »