Commodities Comeuppance?

Still, for the metals, it really is the emergence of China and India as economic powerhouses and the globalization of economic trends that "have impacted us quite a bit," says Banerji. Companies involved in extracting the metals can't keep up.

"Even amid persistently robust physical demand [for metals], capacity will not rise sufficiently to materially boost inventories or alter the supply/demand balance, reflecting a decade of underinvestment in the sector," write Doug Porter and Bart Melek, two senior economists at BMO Nesbitt Burns.

The world's largest metals miners, BHP Billiton (BHP Quote) and Rio Tinto (RTP Quote), have repeatedly cited supply constraints as the cause for the jump in the price of metals, such as copper.

Just last week, Germany's Norddeutsche Affinerie, the largest copper refiner in Europe, noted strong demand and a "continued shortage" of the metal.

At the same time, the London Metals Exchange reported that copper inventories dropped 2% to 113,650 tons, which is equivalent to only three days of global consumption.

Production of metals is also impacted by labor and social unrest in different parts of the world, as rallying prices stir up claims of ownership by the countries whose natural resources are being exploited. Last week, Bolivia's new president, Evo Morales, nationalized his country's natural gas assets and said mining would be next.

"Regions that have readily available reserves of metals, such as Russia, much of Latin America and Africa, are increasingly turning to resource nationalism, a flashback to the 1970s commodities boom," writes the BMO economic team.

The outcome, they say, is likely to be less investment and lower output. "In a high-demand, low-inventory environment, this means more upward pressure on prices as costs rise owing to high utilization rates and rising risk without a quick turnaround in sight."