Commodity fever: The buying spree continues
Today's Financial News - Posted August 13, 2009
Just as predicted, China is extending its commodities buying spree. After the Rio Tinto (NYSE:RTP) went sour, Beijing is proving its desperation by jumping into another big deal.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): Coal may be a dirty, four-letter word in Washington, but outside of the beltway (the real world to you and I), the fossil fuel is one of the most important energy sources on the planet.
Billions of dollars are at stake as coal’s popularity and demand waxes and wanes with a volatile global economy.
But no matter what the short-term macroeconomic situation, there is no denying the world’s utter addiction to coal.
China knows the tangible material is much more important to its future than any fiat currency. A currency’s demand can vanish with just one vote or swing of a leader’s pen, but a fuel source that powers continents is going to be around for decades.
This planet will be burning coal until we pull the very last ton of the stuff from the earth’s crust, whether the Prius drivers like it or not.
Sorry Mr. Gore
With that notion in mind, it is not surprising China has made some of the bold moves it has in the past few weeks.
After a troubled bid with Australia’s Rio Tinto (NYSE:RTP), Beijing officially arrested four of the Australian company’s employees earlier this week, accusing them of stealing state secrets. It is proof that China is not taking its imported coal dependence lightly.
With power production and infrastructure growth increasing at a rapid pace, China has already imported more than 48 million metric tons of coal this year, twice what it demanded a year ago.
With such huge levels of foreign coal entering its borders, it is no surprise Chinese miners are working overtime to make the coal their own.
That is why we get headlines like we are seeing today that tell us Yanzhou Coal (NYSE:YZC), China’s fourth largest producer, is shelling out $2.9 billion to get its hands on Felix Resources, a cash-rich Australian miner that produces some 4.8 million metric tons each year.
If the deal is finalized, it will more than double the $2.2 billion Chinese firms have already invested in Australia’s growing energy and resources industry.
What does this tell investors?
It proves that, next to oil, coal is the most important fuel resource on the planet. Even better, it exposes one of China’s greatest weaknesses, its dependency on foreign commodity imports.
As you likely know, I have been all over China’s commodity sector. I have said time and time again its combination of a huge stockpile of American debt and an addiction to imported commodities will ultimately spell big trouble for America and will work to disrupt the global markets.
In fact, the investment I have been urging investors to load up on is up by over 30% today.
Do you think the Yanzhou story has anything to do with it? You bet it does. It is what we call a “confirmation” event.
An upgrade from JP Morgan (NYSE:JPM) earlier this week doesn’t hurt either.
Flat out, here’s the situation: There is plenty of hype in the nation’s “green” energy sector, but the fundamentals for the world’s traditional energy sources have never been more attractive for investors.
The over-extended premiums investors were paying eighteen months ago have vanished, creating a fantastic investment opportunity, especially in China.
Take a moment to read this report and learn more about this intriguing situation. It is going to be a very important theme over the next 24 months.
Next Article: 20.5% gains on Sunoco, Inc. (SUN): What’s next?
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