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!

Energy

Along with these huge advancements in Chinese infrastructure has come a heightened demand for energy. As roads are being improved and traveling around China becomes more popular, more people are trading in their bikes and use of mass transit for private automobiles.

Because of this, China's oil consumption has increased to record highs in recent years. The growth has been phenomenal. While the U.S. remains the world's top buyer of oil products by a wide margin, China has moved up to number two. China currently uses nearly eight million barrels a day, and the country's usage is increasing by the day, contributing to the already-tight oil crunch.

With oil prices now breaching another all-time high at $117 per barrel, I'm sure you have felt the pinch at the pump. But the oil crunch has also created an excellent investment opportunity. So let me help to ease your pain by recommending an oil company that is profiting from rising demand and prices.

This China Strategy recommendation is China's largest offshore oil producer. The company has grown quickly in recent years, especially with acquisitions. Looking ahead, I think the company will continue to buy oil and gas properties around the world because of the ever-growing demand in China. Interestingly, my contacts in the oil industry believe that the largest undiscovered oil and gas fields in the world are under water in the South China Sea -- right in this company's territory. Do you want to know the name of this company and my specific buy advice? Join China Strategy today to find out!

Agriculture

My next play on the commodities boom is the agricultural sector. As China develops, it is currently enjoying a period of prosperity. But with this prosperity has come high inflation -- the consumer-price index for China hit 8.3% in March -- and thus, a higher cost of food.

As you know, rising demand for products creates a tightened supply, which pushes up the price of these products. In turn, this pricing pressure is also placed on other products, resulting in high prices for almost anything you want to buy. This is exactly what is happening in China, as the record-high inflation is pushing up the cost of food.

But no matter how high prices rise, the demand for food remains, and farmers must try to keep pace with this demand. To do this, farmers have turned to fertilizers in order to produce more rice, fruits and vegetables.

So to play the agricultural commodities boom, I recommend investing in the world's largest fertilizer producer. This company produces the three main fertilizers -- potash, phosphate and nitrogen -- and sells it to countries all over the world. And because of the unprecedented demand for food, the company is actually selling its products at record-high prices this year. Learn more about this company and its impressive financials, as well as my buy advice, by becoming a member of China Strategy!