"The China Investor: Awakening Dragon on Commodities Market - There are some interesting statistics in this latest issue of The China Investor, particularly regarding the consumption of commodities. While this is not a new story, I expect it to run and run. The China Investor is posted in the Subscriber's Area but here is a section of Frank Holmes' article commencing on page 17:
There are a number of factors driving the record gains in world commodities and materials prices, but no factor is greater than the demand from China. Asia's most populous country accounts for a rising share of worldwide demand in all commodities. This year alone, China's demand for steel products has risen 20.8% and that for coal products 18.6%. To meet its growing consumer and industrial demand, China imports large quantities of gold, platinum, nickel, silver, oil, copper and iron ore. Now is the time to take advantage of the growth opportunities provided by China's insatiable demand for these commodities and basic materials.
For example, Asia consumes 19 million barrels of oil daily, with a population of about 3 billion. By contrast, 285 million Americans consume 22 million barrels of oil a day, a per capita consumption more than 10 times higher. Led by China-which overtook Japan to become the world's second-largest oil consumer after the United States in 2003-Asia's demand for oil is growing steadily and should result in higher energy prices going forward.
BOOMING ECONOMY
China's industrial production, which rose 17% in 2003, has consistently outperformed the industrial production of the United States. China's strong performance is a result of the government's foreign direct investment reform and infrastructure modernization. Foreign entities are taking advantage of these changes by investing in a marketplace that remains more than 1 billion people strong. China's GDP continues to grow at astounding rates-expanding 9% annually in the decade between 1993 and 2003. It is estimated that more than 270 million Chinese have risen above the absolute poverty line in recent years. The trends in China provide a sharp contrast to other emerging economies, where negligible economic growth has raised the prevalence of poverty and increased social unrest, driving away foreign investment.
SURGING COMMODITIES DEMAND
China's demand for precious metals continues to gain momentum with the opening of its gold market to retail investors. China's culture has an acute affinity for secular and religious precious metal jewelry, which-when combined with increasing per capita consumption-will be a powerful engine for growth. Not only are gold and silver experiencing increasing demand, China now accounts for more than 50% of platinum consumption worldwide, up from 30% in 2000. This growth largely comes from the popularity of platinum jewelry.
China's share of the global consumption of industrial raw materials continues to grow. Higher relative GDP and industrial production growth in China are critical factors in explaining this phenomenon. China's demand for iron ore and nickel has been largely driven by the country's need for large amounts of steel in constructing additional infrastructure to meet the needs of its people. Copper also requires measurable importation to meet the country's needs for construction pipe and wiring.
My view - I met Frank Holmes of U.S. Global Investors, Inc when were speaking at the World Money Show. He's an impressive guy and quite a promoter. I'd probably buy his fund, if I didn't aspire to do at least as well by trading the commodities myself.
Not many people in the investment game today lived through, let alone participated actively in the commodity boom of the 1970s. Consequently they have little firsthand experience of a secular bull trend in raw materials. These are characterised by powerful and at times explosive uptrends, followed by very sharp reactions, which generally find support above important previous lows where there is a supply inelasticity problem.
I agree with Frank Holmes' main contention - the secular bull market for industrial commodities has only just begun. I also believe that it will be one of the biggest, lasting for many years due to cyclical reasons, ranging from historic low prices in real terms, to an increase in credit creation and synchronised periods of global GDP growth. Last and by no means least, we have the rapid economic development of huge and previously impoverished countries led by China and India
"
Fullermoney.com |
