Arguably the most romantic line from 2004's The Notebook, starring Ryan Gosling and Rachel McAdams, comes on the pier in a driving rainstorm. The star crossed lovers discover their relationship has been thwarted by a meddling mother. But love saves the day.

'It wasn't over. It still isn't over,' says Noah to Allie, before rushing in for a cathartic kiss.

Is it over for Australia? The love affair between China and the iron ore of the Pilbara? Is the commodities boom over?

Martin Ferguson, the Federal Resources Minister, weighed in late last week. He said, 'You've got to understand the resources boom is over.' That seems pretty definitive. And it would be hard to argue with in light of BHP Billiton's decision last week to shelve its $30 billion planned expansion of the Olympic Dam copper, uranium, and gold mine in South Australia.

BHP may be making the best decision for shareholders, at least in terms of how to use capital. And it's not like the gold, copper, and uranium are going anywhere. They're still buried under about 300 metres of overage, waiting for an extraction method that doesn't break the bank. But there's no doubt Ferguson's comments sparked a lot of anxiety in political circles, where resource royalties at the State level and taxes at the Federal level play a big role in funding government budgets.

But the Minister didn't back down. A day later he clarified, amplified, and solidified his thoughts on Australia's resource boom:

'The commodity price boom is over. Anyone with half a brain knows that. Just think about this: coking coal is down from $US320 a tonne to $US220 a tonne. Iron ore down from $US180 to $US105 a tonne. Thermal coal down from $US220 to $US80 a tonne.'

Yep. On price action alone, it's hard to argue with. With Chinese steel production capacity at over 800 million tonnes a year and already over capacity, you would expect lower prices for steel making minerals like iron ore and coking coal. In fact, Chinese customers are turning away contracted shipments of iron ore, according to an article by the Australian Financial Review. Rio Tinto is being forced to sell some of that ore into the spot market.

While we're on the subject, check out the chart for iron ore in the spot market recently. It looks like a particularly dangerous roller coaster that moves mostly in one direction: down. Of course that's just the price action between May and the end of August. A fall of 30% during a North American summer of indifference is a big correction. But is it a fundamental change in Australia's economic fortunes?

Click to enlarge Source: FT Alphaville

Reserve Bank Governor Glenn Stevens doesn't seem too worried. Last week he told a Parliamentary committee that, 'The peak of the resource investment boom as a share of gross domestic product - the highest such peak in at least a century - will occur within the next year or two.' But what exactly does he mean?

Stevens is thinking in GDP terms. The RBA reckons there's $500 billion in resource capacity expansion on the books in Australia. Each dollar of new investment contributes to GDP. That pipeline is enough to offset falling resource prices. And by the time the investment dries up, it will have enabled greater production volumes.

Do you see what he did there?

Higher export volumes will keep national income high and resource stock prices afloat even if prices come off the boil, according to the RBA. It is the bank's desperate hope that residential and commercial real estate construction will take up the banner of economic leadership and drive the economy to a 21st consecutive year without a recession.

All that sounds lovely. But it's another way of saying that something will always boom, provided there's enough credit to stimulate demand. It also conveniently ignores the fact that the US, Japan, and Europe all exhibit signs of malaise, lethargy, and a general economic fatigue. Carrying around a load of debt will do that to you.

And by the way, if you thought China was rolling along without a problem, check out this New York Times article from last week. It fits in nicely with the narrative that Chinese productive capacity, of which iron ore demand is derivative, exceeds demand by quite a bit. China's economy is making too much stuff:

'After three decades of torrid growth, China is encountering an unfamiliar problem with its newly struggling economy: a huge build-up of unsold goods that is cluttering shop floors, clogging car dealerships and filling factory warehouses.'The glut of everything from steel and household appliances to cars and apartments is hampering China's efforts to emerge from a sharp economic slowdown. It has also produced a series of price wars and has led manufacturers to redouble efforts to export what they cannot sell at home.

'The severity of China's inventory overhang has been carefully masked by the blocking or adjusting of economic data by the Chinese government - all part of an effort to prop up confidence in the economy among business managers and investors.'

We'd be willing to say that all governments block or distort data that tells people how poorly the economy is really doing. Yet it's amazing how many people all around the world still have faith that the right monetary policy or the right fiscal policy or the correct tax rate will magically produce wealth.

Human enterprise and ingenuity produce wealth. They do so when money is sound, taxes are low, government is limited, and people can find equal justice under laws that aren't changed to favour the powerful and the privileged. Of course we don't live in a world like that, so hang on just one second while we get off our soap box.

There! Okay, so from down here, in the real world, where do we go? Well, rather than making a guess, or choosing sides, we'll turn, as we so often do in moments of indecision or confusion, to our trusted friend Dr Copper. He can be a bit moody. But let's hear him out.

Click to enlarge Source: StockCharts

Copper is regarded as a useful macroeconomic diagnostic tool. Copper demand rises when construction booms. And construction booms when an economy expands. Incidentally, the decision not to expand Olympic Dam immediately may be a boon to copper. Olympic Dam is the world's fourth-largest known uranium deposit. Keeping it off-line may lead to lower-than-expected copper production in the next few years.

But that was rude of us! What does Dr Copper say? The chart does indeed show that the copper price per pound turned up late last week. That upturn may have been related to the BHP decision. But the longer-term shows that the 50-day moving average is still under the 200-day moving average. You'd think that the 50-day would have to cross the 200-day to confirm a big move higher.

At least that's what we'd think. We'd normally cross-check that analysis with Slipstream Trader Murray Dawes. In our first Strategy Session earlier this year (a new interview series that's available to you if you subscribe to any of our paid newsletters) Murray identified the copper chart as the key one to watch for clues on what to expect in the Aussie market.

Murray is back in the office soon, after a whirlwind world tour that's taken him to Vancouver, New York, London, and somewhere on the coast of Spain at the moment. In the meantime, we'll continue pondering whether the resources boom is emphatically over. Stay tuned.

Regards,

Dan Denning
for The Daily Reckoning Australia