Recovery in Commodities = Profitable Opportunities

Robert Hsu, November 03, 2009

In this Issue:

Robust Chinese Demand Driving Commodities Recovery
A Bullish Outlook on Gold
A Recovery in the Steel Industry
Profiting from a Rebound in Steel Demand

Robust Chinese Demand Driving Commodities Recovery

I don't think that anyone will forget the dramatic plunge of practically all commodities in 2008. After reaching incredible heights in the first half of 2008, commodities fell off a cliff as the financial crisis hit the global economy hard.

Crude Oil fell from a high of $145 per barrel in July 2008 to a low of around $30 per barrel in December 2008. In 2009, prices have been trading between $35 and $80 per barrel.
Copper prices traded at a high of $4.02 per pound in March 2008 before dropping to a low of $1.30 by yearend 2008. Prices are currently trading around $3 per pound.
Soybean futures traded around $14.10 per bushel in June 2008 and then tumbled to a low of $9.54 per bushel in November 2008. In 2009, soybeans have been trading between $9.20 and $11.80 per bushel.

Although commodity prices definitely tanked last year -- as you can see in the sampling above -- what's great is that commodities are now rebounding. And much of the recovery in commodities this year has been driven by global government's stimulus packages.

China, in particular, has been a huge driver in commodities' recovery this year. The country's $586 billion stimulus package dedicated a large portion of funds to infrastructure projects, boosting the demand for iron ore, copper and oil. In fact, China's crude oil and iron ore imports surged to a record high in July, with oil jumped 18% to 19.6 million tonnes and iron ore increasing by 5% to 58.1 million tonnes.

Now along with China's infrastructure build out boosting demand for iron ore, copper and oil, the country's rapid economic growth is also spurring demand for agriculture commodities. China has more than one billion mouths to feed already, but its farmland hasn't been able to keep up with rising demand. As a result, the country is turning to imports of soybeans and grains from the U.S. with China's soybean imports jumping to a record five million tons in June.

And as you might have guessed, this strong Chinese demand for agriculture and other commodities coupled with the U.S. dollar weakness has been driving the recovery in commodities this year. Now, that's a trend that I look to continue into 2010, with oil, gold, industrial metals and agriculture commodities heading higher.

I'm particularly bullish on the outlook for gold and oil prices in the near term. I'm expecting gold prices to hit $1,200 sometime next year, and oil prices to trade back up around $90.

My China Strategy subscribers are already taking advantage of these trends with plays on both oil and gold. Our top oil play, China's leading offshore oil driller, is up nearly 60% year to date and has handed my China Strategy readers more than 130% gains since I recommended it.

Our gold play has performed just as well, and I'm extremely positive on its prospects going forward. Let's take a closer look.

1 | 2 | 3 | 4 | Next