Top Three Ways to Invest in the Commodities Boom

Robert Hsu, April 22, 2008

Asia's growth and insatiable demand for natural resources -- China's in particular -- has fueled a worldwide commodities boom in recent years. As China has emerged and developed its country, its demand for natural resources has skyrocketed -- in fact, China is now the world's biggest consumer of steel, cement, copper, gold and even meat! But don't think that this demand is likely to diminish any time soon. China's emergence as an economic powerhouse will continue for years, pushing forward the commodities boom that is happening all over the world right now.

This commodities bull market is maturing, however, and in most cases, the easy profits have already been made. You can no longer buy a natural resources mutual fund and expect to make 25% a year. But if you look a bit harder, you'll find select commodities that are booming and offering handfuls of profits right now. So let's take a closer look these leading commodity sectors, as well as the best ways to profit from their current success.

Metals

China is quickly building out its cities with new infrastructure. Not only has residential construction increased in recent years, but commercial construction had jumped dramatically, as well. Because of China's need for materials to rapidly create new infrastructure, China has helped fuel the boom in both nickel and iron ore.

Nickel's biggest use is producing stainless and alloy steels (mixtures of steels), which are used mostly in industry and construction. So with the current build-out in China, Chinese steelmakers are driving a surge in nickel demand. Just take a look at the numbers: China's nickel use grew from 15.5% of the world's total consumption in 2005 to 18% last year!

The same surge in demand is happening with iron ore, again with China playing an increasingly important role. Chinese iron ore imports reached 326.4 million tons in 2006, more than tripling from less than 100 million tons in 2002. As a result, iron ore prices increased 72% in 2005, 19% in 2006, and 9% in 2007.

Higher-than-expected demand for nickel and iron ore -- especially from Chinese steelmakers -- is keeping supplies tight. As the country continues to grow and changes steadily occur in its cities, I expect China to drive demand for nickel and iron ore over the next several years. Nickel consumption there should increase 20% annually, compared with a 2.3% average for the rest of the world. And Chinese steel production is expected to grow at an average rate of 13% until 2012, so demand should stay strong for some time to come.

One of my favorite China Strategy companies has recently become a leader in these two hot commodities. Averaging 43% growth per year since 2001, this enormous growth has been led by the company's involvement in the boom in both nickel and iron ore. The company is now the world's second-largest metals and mining company, and is giving China Strategy subscribers impressive profits. Get in on the profits, too, by joining China Strategy today!

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