Saturday, February 16, 2008

China’s commodity hunger: From oil and copper to milk and grain*

A good overview. The pithiest advice we've seen is * below.

From Deutsche Bank:

"China’s thirst for natural resources has for several years been an issue in the global markets for petroleum and hard commodities like iron ore and copper. Since the summer of 2007 at the latest China’s thirst for commodities has even been felt by consumers in Germany – after all, the rising prices of dairy products in German stores have been blamed on increased demand in China. And shortly before Christmas it was reported that the prices of Christmas trees would also rise on account of unexpectedly strong demand from China.

The fact is that swift industrialisation and rapid growth in sectors ranging from steel to IT have made China the leading importer of a whole range of commodities. With a share of nearly 70% of global chromium imports China ranks a long way ahead of Russia with just 13%. China is also the world’s biggest importer of iron ore and manganese with shares of over 40% of each segment. Only on copper imports does China land in second place with almost 19% – just behind Japan.

Another consequence is China’s increased energy requirements. Fossil fuels provide more than 80% of all electricity generated in China, with hard coal the main source. China’s proven coal reserves are the third largest in the world, behind those of the US and Russia. However, it tops the production rankings by generating nearly 40% of global output. As long ago as 1993 China had already lost its status as a net exporter of crude oil, and imports have risen inexorably since. Between 1996 and 2006 its oil consumption doubled, whereas its output rose by just 16%"....MORE
For more on this topic see:
Also from DB (16 page PDF)China’s commodity hunger – Implications for Africa and Latin America

*Go long where China is short

From the Financial Post:

...Dennis Gartman is recommending that investors consider the following principle when making decisions in 2008: “We wish to be long of that which China is short of, and short of that which China is long of.”

This means be long grains, energy and water, and short labour, he told clients in Thursday’s edition of The Gartman Letter.