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:
China’s mining industry is quite large, but in many respects quite out of date.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
- 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.
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.
China is the:
- #1 producer of gold, with 13% of the world’s production against a bit less than
- 4% of global reserves.
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.
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.
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.
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 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.
- #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)
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.
Investors can buy the stocks of producers like:
- PetroChina (PTMR) and
- CNOOC (CEO).
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:
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
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?].
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.
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.
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