Paran Balakrishnan: The Sunset comeback

MY WORD!

Remember the "Sunset" industries. They were the lowly corporates which weren't hep and happening and blessed with the potential of limitless growth. Their shares were stock market untouchables that never had investors reaching for their chequebooks. They were obviously a waste of time in an era when software and dotcommery ruled the world.

Who would have dreamt that four years into the 21st century companies like Exxon, mining giant BHP Billiton, or even Lakshmi Mittal's Ispat International would be declaring dazzling results and bouncing back in the markets.

Take a look at BHP Billiton, the Australian mining company that's furiously digging out from the earth greater quantities of copper, lead, zinc, and lead than ever before.

The company is also shipping huge quantities of iron ore, mainly to China. BHP profits have zoomed by 77 per cent to $3.2 billion. Sales are up 42 per cent. The reasons for BHP Billiton's red hot results are quite simple: the prices of everything from copper to zinc and iron ore are close to record levels. Copper prices have soared 65 per cent in the last year and rose 4 per cent last Friday.

Or, look at Ispat International, which listed back in 1997 at around $27, considered a handsome price for a steelmaker""even if it was a global one. But as times became tough for commodity companies, Ispat's price tumbled to around $2.

In the last six months, Ispat has turned out better profits than it has in any full year. The share price is climbing steadily and has now touched $25. It should be mentioned that steel prices have doubled since a year ago. Ispat has been perfectly positioned to take advantage of the world's sudden hunger for steel.

And what about the oil giants? On Thursday, oil soared to the unthinkable level of $48.2 and the way it's going, US light crude at $50 doesn't seem unlikely. Presumably, prices will soon fall to more reasonable levels. But winter is approaching, and North America and Europe will need to start stocking for the cold months.

So, it's hardly any surprise that Exxon has also notched up record-level profits of $5.79 billion for the second quarter. That's up 54 per cent from the same time last year. The other oil companies like Shell and Mobil have also struck record gushers of profit. Oil prices have been moving northward inexorably and have risen by 27 per cent in the last six weeks.

What's the common factor that's pushing up the prices of oil, steel, copper, and a host of other minerals? That's hardly a secret. In all the three cases it's the China Factor at work. China now accounts for 9.8 per cent of BHP Billiton's sales and that's up from 6.9 per cent last year. It's the same story at Rio Tinto Zinc, the world's second largest mining company.

What's more, with a bit of help from China and India, it looks as if these Sunset industries could be churning out Sunrise-style profits for the foreseeable future. It's reckoned oil demand will climb by about 40 per cent in the next two decades. The oil companies have already begun their search for alternatives like shale oil, which have suddenly become economically viable.

India, in fact, is already making its presence felt as prices shoot through the roof. Global analysts are watching anxiously as oil supplies drop in India. But analysts say strong demand growth in China and India has not been slowed yet by higher energy costs.

It's suddenly becoming an unspoken belief sooner or later India will speed down the same superfast highway China is on. In many cases that's the justification for many industries to invest in products like steel and copper even though they are touching record levels.

The dictionaries define Sunset industries are ones past their prime where growth prospects are limited. For the analysts who scornfully dismissed the Sunset giants in favour of dotcom dreams it's a reminder that fashions change with remarkable swiftness""and no industry is a star forever. That goes for both dotcommers and sunset-style metal bashers.