Monday , 29 May 2017


China Continues to Be an Enormous Force in the World's Commodity Markets: Check Out These Investment Opportunities

With China becoming the #2 economy in the world it has, without question, transformed into an enormous force in the world’s commodity markets…with many years to come of major commodity production, consumption, and importation for China and the countries that serve that commodity food chain. [Let’s examine China’s dominance in the commodity industry and identify investment opportunities to take advantage of continued growth.] Words: 1282

So says Stephen D. Simpson (www.commodityhq.com) in edited excerpts from his original article* entitled A Deeper Look At China’s Commodity Industry. For other commodity news and analysis subscribe to their free newsletter and munKNEE.com’s very own free Your Daily Intelligence Report which consists of  edited excerpts from the “best of the best” financial/economic/investment articles of the day to provide clarity and brevity and ensure you a fast and easy read.

Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!), has edited the article below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.

Simpson goes on to say, in part:

Mining

China’s mining industry is quite large, but in many respects quite out of date. It is difficult to find specific numbers regarding mining’s contribution to China’s economy, but direct mining activities are likely not much more than 5% of China’s GDP, and the industry employs about 4% of the country’s workers. Presuming that China’s mining sector operates along similar lines to South Africa and Australia, it does not seem unreasonable to suggest that mining-related industries (including refining, smelting, and so on) are another 5 – 10% of GDP. Approximately 25% of China’s trade is in minerals, ores and the like.

China is exceptionally rich in natural resources, but the country has been exploiting them at an unsustainable rate. Nevertheless, the Asian nation is a leading producer of a whole host of minerals and metals, including aluminum, antimony, barite, cement, coal, gold, iron, lead, molybdenum, rare earths, salt, tin and zinc. Due to the enormous appetite for raw materials, though, China is in the rare position of, in many cases, being the world’s leading producer of a commodity, as well as the world’s leading importer.

1. Iron Ore

China:

  • produces 43% of the world’s iron ore and
  • holds 9% of the world’s iron reserves, yet is also the world’s
  • #1 iron ore importer as well, importing 52% of world exports.
[Read: China’s Demand for Iron Ore (Steel) Continues – Here are the Facts].

2. Copper & Potash

China is the:

  • #4 copper producer and
  • the #5 potash producer and is also the
  • major importer of each on the global stage.
[Read: Why Copper Prices Have Increased So Dramatically Over the Last 10 Years and Passport Potash Inc. (TSX.V:PPI): Your Passport to Profits?]

3. Gold

China is the:

  • #1 producer of gold, with 13% of the world’s production against a bit less than
  • 4% of global reserves.
[Read: Gold: The Top 10 Holders & Producers by Country– and 23 Investment Options and 50 Ways to Invest in Gold]

4. Silver & Platinum Group Metals

China is likewise a major producer of silver and platinum group metals (PGMs).

[Read:  The Top 10 Silver Producing Countries & Companies – and Investment Options and Want to Invest In Silver? Here are 25 Ways to Do Just That]

5. Rare Earth Metals

China is the world’s leading exporter of rare earth metals.

[Read Mining of Heavy Rare Earth Elements (HREE) in Canada by 2017 Offer Major Investment Opportunity]

When it comes to trade, China is:

  • the leading exporter in the world of antimony, barite, rare earths and not much more (though it is a major player in steel and aluminum).
  • In contrast, despite large amounts of annual mine production, Chinese demand exceeds supply in minerals like chromium, cobalt, copper, iron, nickel, PGMs and potash.
[Read: Nickel: Demand Strong, Supply Diversified & Prices Stable]

Energy

With its enormous population and economy, it is of little surprise that China is an equally enormous consumer of energy. [Read: 10 Facts About Global Energy Sources & Consumption – You’ll Be Surprised] As its economy has grown, the country has found itself increasingly in the position of being a large net importer for much of its energy needs.

1. Oil

China is the world’s:

  • #2 oil consumer…and the world’s
  • #4 oil producer. With a gap of 4.6 million barrels per day between consumption and production, China is the world’s
  • #2 oil importer. As time goes on, this is likely to get worse – China ranks
  • #13 in reserves (20.4 billion barrels), but its fields are mature and declining and the country is increasingly turning to more aggressive approaches like shale oil exploration.

2. Natural Gas

China is the world’s:

  • #7 producer of natural gas,
  • #5 consumer…but ranks only
  • #12 in reserves and, as such, is the world’s
  • #16 natural gas importer, but this number could rise as pipelines and LNG facilities come online around the world.
[Read: Invest in Natural Gas – Here’s How]

3. Coal

It is difficult to exaggerate the importance of coal in China….China is not only the:

  • #1 producer of coal, it is also the
  • #1 consumer of coal in the world, consuming 50% of the global coal supply…The gap between production and consumption isn’t that large…but it’s enough to make China the
  • #2 coal importer in the world (Japan is #1). China is
  • #3 in coal reserves in the world (about 13% of the global total at 128 billion tons), but the quality of those reserves is up for debate.

Agriculture

Agriculture is a large part of the economy (over 10% of GDP), not only from the value of products grown, imported and exported, but also in the number of people it employs and the extent to which it drives the economy away from the industrialized areas.

China is:

  • #1 producer of rice (38% more than India), but readers may be more surprised to learn that it’s the largest
  • #1 producer of wheat (42% more than #2 India) and the
  • # 1 producer of fresh vegetables (almost 5x larger than #2 India).
  • #2 producer of corn (reaching about 55% of the United States’s production, but producing 3x as much as #3 Brazil) and the
  • #3 producer of soybean (albeit tiny compared to the United States, Brazil and Argentina)
[Read: Major Investment Opportunities Exist In Agriculture!  Here’s 50].

In terms of trade, China is the world’s:

  • #1 agricultural exporter (in terms of total value) and the world’s
  • #2 importer (behind the United States) and, on balance,
  • a net importer of agricultural commodities. China imports a large amount of soybeans, palm oil, cassava, corn and rapeseed, while it is a leading exporter of garlic, apples, other fruit, dried beans and vegetables (fresh and preserved).

Stocks/Funds To Play China’s Strengths

China’s huge influence on commodity markets moves a large number of stocks and funds, and investors have numerous options for playing these opportunities.

1. Energy

Investors can buy the stocks of producers like:

  • PetroChina (PTMR) and
  • CNOOC (CEO).

2. Minerals

On the minerals side:

a) there are large coal producers like:

  • China Shenhua (CSAUY) and
  • ChinaCoal (CCOZY) and

b) aluminum smelters like:

  • Chalco (ACH).

c) steel producers like:

  • Baosteel, the world’s second-largest steel producer, who will at some point pursue a listing in Hong Kong and perhaps an ADR for the United States as well.

China is also a major factor for non-Chinese companies like:

  • Vale (VALE),
  • Freeport McMoRan (FCX) and
  • Rio Tinto (RIO).

3. Agricultural Companies

There are also a host of agriculture companies, including names like:

  • Zhongpin (HOGS) and
  • China Mengniu (CIADY).

4. Machinery Companies

There are a number of companies that are heavily leveraged to the mining sector, like:

  • Sany

American companies are expecting Chinese demand to be an increasingly significant driver of future results like:

  • Caterpillar (CAT),
  • Joy Global and
  • Deere (DE) .

5. Chinese ETFs

The China ETF space is packed full of funds that invest in virtually every major sector the nation has to offer. Some of the most popular tickers include:

  • the China All-Cap ETF (YAO),
  • the SPDR S&P China ETF (GXC), and
  • the FTSE China 25 Index Fund (FXI).

Trends/Developments To Watch

Considering how China is over-producing so many minerals and ores (that is, producing at a level that the reserves cannot support for very many more years), [Read:  Certain Hard Commodity Prices Will Drop By As Much As 50% By 2015 – Here’s Why] it seems hard to imagine that they will not continue to essentially set the global price for exports of copper, coal, iron ore, bauxite, and so on. Along those lines, producers like:

  • Rio Tinto,
  • Peabody (BTU) and
  • Vale

have made long-term plans predicated on ongoing (if not increasing) Chinese demand. Likewise, China will very likely see its agricultural imports increasing, particularly in higher-value foodstuffs like animal protein and seafood

[Read: The “Ins” and “Outs” of Investing in Commodities and Commodity Trading: Which Option Options (if any) Belong in Your Portfolio?].

Conclusion

Although the argument that the nation may have overbuilt some of its Eastern cities isn’t unsupported, there’s a huge portion of China that still has relatively primitive and/or inadequate infrastructure. That argues for many years to come of major commodity production, consumption, and importation for China and the countries that serve that commodity food chain.

*http://commodityhq.com/2012/a-deeper-look-at-chinas-commodity-industry/

Editor’s Note: The above post may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.

Related Articles:

1. Commodity Trading: Which Option Options (if any) Belong in Your Portfolio?

commodities

Commodity investing has been around for decades, but it was only recently that their popularity has spread to the general public. It is now generally recommended that investors set aside anywhere from 5% to 10% of their capital for a commodity allocation, as these hard assets generally offer uncorrelated returns essential to diversification. While many investors utilize stocks, ETFs, and futures to obtain their commodity exposure, options contracts can often be a better alternative to not only your commodity holdings, but for the remainder of your portfolio as well [Let me tell you more about options and also why they might/should have a place in your portfolio]. Words: 995

2. The “Ins” and “Outs” of Investing in Commodities

commodities

Commodities have obvious appeal to active investors looking to generate profits from short-term price movements [but while] the volatility of this asset class is ideal for risk-tolerant individuals who actively monitor their positions…commodities may also have appeal to the long-term, buy-and-hold crowd…These potentially appealing attributes come with plenty of risk, [however, as] the path to commodity exposure is full of potential obstacles and pitfalls that can erode returns and lead to a less-than-optimal investing experience. Here are ten rules of thumb that will help you achieve a more successful experience investing in commodity markets. Words: 2871

3. 50 Ways to Invest in Gold

golden dollar

For these investors looking to make a play on this elusive metal, we explore below every nook and cranny of the investing world to offer 50 ways to play gold.

4. Major Investment Opportunities Exist In Agriculture!  Here’s 50

PD-farm-300x197

The agriculture sector has long been a popular place for commodity trading. After all, it was with agricultural futures that commodity trading got its start. Farmers had originally used these contracts to help offset any losses in crop yields. Now, the agricultural space has blossomed into a market chock full of options for investors, but many investors are still unaware of the vast opportunities that this sector offers. [Let us change all that!] Words: 2376

5. Invest in Natural Gas – Here’s How

OIL

[Although] investing in natural gas is an incredibly popular and active sector of the commodity world given its robust growth predictions,…it tends to exhibit violent daily swings with high and liquid volumes. While this can lead to significant losses, for those who play their cards right, trading natural gas can make for a nice short term reward. [That being said,] for the more traditional “buy and hold” investor there are still a number of options that, [while they] may not directly invest in the commodity, offer significant exposure under a safer structure. [In this article I have identified 25 ways to invest in natural gas to help investors pick the correct security for their portfolio]. Words: 1800

6. Want to Invest In Silver? Here are 25 Ways to Do Just That

Silver Bars

Now that Q4 is underway, investors are scrambling to find the right asset class for this rocky environment. Last quarter wreaked havoc on a number of investments and portfolios alike, as the global economy seems to be on a downward spiral. Given the current environment, various investors have flocked to their favorite safe havens to wait out the storm. Gold is perhaps the most popular safe haven in troubled markets, though its actual use as a metal is relatively low. As such, there has been much speculation over whether or not the metal is overvalued, scaring a number investors out of gold and into another precious metal, silver. Words: 3422

7. Passport Potash Inc. (TSX.V:PPI): Your Passport to Profits?

commodities

I had the pleasure today of attending a presentation by Passport Potash Inc. (TSX.V:PPI & PPRFT:OTCQX) that is “Cultivating Global Growth” in its pursuit of profits. It is an interesting story. Let me share it with you. Words: 560

8. Certain Hard Commodity Prices Will Drop By As Much As 50% By 2015 – Here’s Why

Copper USFS

I have been bearish on hard commodities for the past two years and, while prices may have dropped substantially from their peaks during this time, I don’t think the bear market is over. I think we still have a very long way to go and there are four reasons why I expect prices to drop a lot more. Words: 3978

9. China’s Demand for Iron Ore (Steel) Continues – Here are the Facts

iron ore mining

Iron ore is now the world’s second largest commodity market after oil and is essential for developing nations to build infrastructure and to modernize accounting for 95% of all metal produced annually. [As I can personally attest to from my recent 29 day trip throughout mainland China, it is no surprise that] China’s rapid industrialization in the last decade…is responsible for all the growth in steel consumption since 2000…placing a huge strain on the global iron supply and pushing iron exploration into untapped regions of the world. Although the price of iron price rose steadily until peaking in 2011 (it has softened as of late), the long-term outlook is strong. Learn more in this informative infographic.

10. Why Copper Prices Have Increased So Dramatically Over the Last 10 Years

Copper USFS

In this infographic we explore why copper prices have increased by 4x over the course of 10 years.

11. Gold: The Top 10 Holders & Producers by Country– and 23 Investment Options

3703545074edde1d55e8eb

Gold is one of the rarest metals in the world, and has a long history as a valuable and intensely sought-after element. The precious metal has served as the basis for physical currency for thousands of years, and many monetary systems throughout human history have utilized a gold standard that focused on the precious metal. Exploration and production of gold has become a major industry in regions that maintain significant deposits of the metal, and quests for gold have been the impetus of countless expeditions and discoveries. [Below are a list of the top 10 gold producing countries, the top 10 gold producing companies and a definitive guide as to the multiple options of investing in the metal.]

12. The Top 10 Silver Producing Countries & Companies – and Investment Options

PD-Silver-Coins-300x200

Silver has been an important metal for thousands of years, often used as a medium of exchange or jewelry in ancient times….Today, silver still finds its way into jewelry and coins but it is now also a key ingredient in many ‘modern’ applications as well….Due to this multitude of uses the metal has continued to be a popular investable asset…[as well] as a store of value and an inflation hedge. Below are a list of the top 10 silver producing countries, the top 10 silver producing companies and a definitive guide as to the multiple options of investing in the metal. Words: 2091

13. Nickel: Demand Strong, Supply Diversified & Prices Stable

nickel

While best known for its use in the five cent coin, nickel has far more strategic uses. Nickel can be alloyed with other metals to create truly extraordinary materials – such as stainless steel which now accounts for more than half of all nickel consumed. China’s stainless steel consumption has increased 1625% in the last 10 years and is now the largest demand driver for nickel worldwide accounting for 40% of global totals. There’s still a lot more room for growth in the industry and nickel’s diversified supply is expected to keep prices stable, so the savvy investor should look for low cost nickel projects in safe jurisdictions. Check out the infographic below for more insights.

14. Graphite: The Driving Force Behind Green Technology

graphite

Global consumption of natural graphite has doubled in the last 10 years and will increase even more so in the next decade due to a) the continuing modernization of China, India and other emerging economies given the strong demand from traditional end uses such as the steel and automotive industries and b) the advent of new applications for graphite such as lithium-ion batteries, fuel cells, and nuclear and solar power. As a result of such increased demand prices for large flake, high purity graphite (+80 mesh, 94-97%C) have more than doubled making the mining of such a minerals increasingly profitable. Learn even more by viewing the infographic below.

15. Mining of Heavy Rare Earth Elements (HREE) in Canada by 2017 Offer Major Investment Opportunity

Earth-e1321574345681

95-97% of the supply of Rare Earth Elements (REE) – integral to the high-technology, nanotechnology, hybrid automotive, aerospace and defence industries – currently comes from China. China has continued to reduce its export quotas to the point where it will only be supplying 50% of the world’s needs by 2015. This will have a major impact on prices for each of the 17 Light (LREE) and Heavy (HREE) elements that comprise the category – and the products in which they are used – unless alternate sources of supply are found. A Canadian company has done just that and will be bringing one of the largest HREE resources in the world (44% HREE, 56% LREE) into production by 2017. Below is an infographic on the REE market and a link to a Proactive One 2One Investor Forum presentation I attended on REE market fundamentals and the development and prospects of Quest Rare Minerals Ltd. and their Strange Lake project.

16. 10 Facts About Global Energy Sources & Consumption – You’ll Be Surprised

oil-well-300x225

Coal, hydroelectric and oil are increasingly in high demand to meet the world’s growing appetite for power. In fact, global energy consumption grew 5.6 percent in 2010, the highest rate since 1973. Discover 10 other fascinating facts about worldwide consumption in this informative slide show.