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Strategies & Market Trends : China Warehouse- More Than Crockery -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (4953)	5/25/2005 4:00:15 PM
From: RealMuLan	Read Replies (1) \| Respond to of 6370

Miners strike gold from Chinese revaluation By: Peter Gonnella Posted: '25-MAY-05 12:22' GMT © Mineweb 1997-2004 PERTH (Mineweb.com) -- With the coffers of major miners already overflowing on the back of the China-fuelled commodities demand boom of the past couple of years, the good times are set to roll on for the Aussie resources sector in the wake of the widely anticipated revaluation of the Chinese currency. Based on a 10 percent revaluation, Deutsche Bank estimates exports coming out of China would fall by around 7.8 percent and imports into China would lift by about 4.8 percent. “Although we do not believe this (a 10 percent nominal appreciation of the renminbi versus the US dollar) will be achieved within the next 12 months, it is a likely outcome in a matter of around two years,” the investment bank claims. It says Chinese import growth and export cuts would create “a tensioning effect upon an increasingly resource consuming Chinese economy”, which is expected to sustain or further boost Chinese commodities demand and therefore continue to represent an associated potential upside risk for Aussie companies supplying raw materials into the Chinese market. “The (Aussie) resources equities winners are numerous, with both Rio Tinto and BHP Billiton standing to gain from a broad basket exposure to Chinese consumption, whilst the mid caps Alumina and Zinifex provide significant leverage to this economic trend,” commented Deutsche Bank analyst Joe Kaderavek. “We believe that the Chinese government will adopt a ‘managed float’ approach, like the Indian system, with several baskets calculated as medium-term references, but not strictly targeted, and the bandwidth unannounced,” he explained. “We think this model would give China ample flexibility on the exchange rate and sufficient independence on domestic monetary operations.” Deutsche predicts that under the managed float structure there will likely be an initial appreciation from the current plus or minus 0.02 percent to around plus or minus two percent, followed by an annual average rate of 3-5 percent appreciation over many years. And that together with the forecast acceleration in imports will have a positive impact on Aussie resources equities and exporters. “Australia’s dominance in commodities such as alumina, nickel and the bulk commodities gives it a strong regional advantage to leverage into any increase in Chinese consumption,” Kaderavek suggested. The Aussie miners well placed to reap the maximum benefits from the RMB revaluation, according to the Sydney-based analyst, are those who are “China short” base metals and bulk commodities producers. “In our view, whilst both BHPB and Rio provide a broad exposure to this upside, and indeed ‘long’ investors will take comfort in our analysis, the leveraged mid caps, Alumina and Zinifex, stand out as key beneficiaries due to their existing market presence and leverage to ‘China short’ commodities,” he said. Even though a revaluation of the Chinese currency may support a stronger-for-longer commodities (or super) cycle view, a lot of leading Aussie resources stocks have suffered a retracement of late, which Deutsche puts down to fears of a global economic slowdown testing investor confidence in the demand cycle. “Speculative money leaving the sector has further exacerbated this trend,” Kaderavek added. Growing concerns over the consequences of high oil prices and rising input costs, as well as the direction of the US dollar and the sustainability of demand from developing countries have led to a cooling of Aussie miners’ share prices and an easing in commodity prices. However, “our view of a prolonged commodities cycle, directly dependent on growing consumption trends of the developing world, a moderating but above trend US economy, in conjunction with non-recessionary performance from both EU-15 and Japan, driving material non-consensus earnings performance over 2006/07 remains intact”. Kaderavek argues the correction is unlikely to drag on and that “now is the right time to reassess belief in the upcoming cycle and take advantage of short-term weakness”. Smith Barney Citigroup feels the increasing uncertainty in the global economic outlook is only natural after such an extended period of growth and peak commodity prices. But it expects ongoing strong demand from China will be able to soak up additional production capacity coming on stream, enabling prices to remain high by historical standards. In addition to the perceived favourable flow-on implications it will have for Aussie suppliers, the possible Chinese currency revaluation – aimed at reining in its economy – will actually help make raw materials, which are predominantly for domestic consumption, cheaper to buy. mineweb.net