The previous resources boom showed how far mining services stocks can rally when rising sector activity puts a rocket under earnings. And how far they can fall when conditions turn.
Higher commodity prices encourage miners to develop projects and improve production economics for mothballed mines. The upshot is stronger demand for mining services providers that help the sector with drilling, production, mine maintenance and logistics.
Falling commodity prices can stop the party in its tracks. More miners cut exploration and production, often leaving mining services companies with expensive idle equipment and high fixed-cost bases. That is why mining services stocks are volatile: they can crash and die in downturns, faster than many investors expect.