Industrial Metals and Emerging Markets Outlook
Investment Outlook is Positive due to Global Situation
Nov 12, 2009
Mining companies have been hit hard by the financial crisis, but as the global economy improves, the situation developing in emerging markets means that investors should allocate a portion of their portfolios to commodities.
At the Money Show London on 31 October, 2009, Michael Evans of the Materialist Millenium Investment Club explained why this particular area should be paid attention to.
"Prices are not back to the level they were before, but there are signals that things are improving. From an investment perspective, it is becoming easier to buy things like copper and lead, investors should absolutely be considering commodities in the asset allocation process," said Evans in a phone interview on 6 November, 2009.
Demand for Industrial Metals will Increase in Emerging Markets
Populations of ambitious and increasingly young, wealthy and educated people will drive a need for more raw materials. India is an example of this kind of demographic reality and as the global economy lifts, demand for raw materials, including steel, is increasing.
On 12 October, 2009, Lakshmi Mittal, Vice Chairman of the World Steel Association, said that the BRIC (Brazil, Russia, India, China) economies have much to be optimistic about, whereas developed economies require more caution.
"Indian steel mills are back working at virtually full capacity; and in Brazil, demand is up forty percent from its trough," Mittal was quoted as saying in the Business Standard.
Supplies of Industrial Metals will Decrease in Emerging Markets
A lack of investment in mining, and the restrictive nature of bringing a new mine into production means a forecast of potential limited supply. Balance between growing demand and new sources of supply cannot be reconciled quickly, so existing miners will benefit from increased production.
Private Investing in Industrial Metals is Easier
With the advent of exchange-traded funds (ETFs) and exchange-traded commodities (ETCs), buying industrial metals is easier for private investors. These funds for industrial metals outperformed developed market equities, bonds, cash and real estate since the start of 2009 and was the top performing commodity in Q3 of 2009.
Short-term Price Downward Trends Could Mean Undervalued Commodities
In the short-term, the steel industry is confronting oversupply problems. China International Mining Group announced on their website on 4 November that they will experience an "intensified" oversupply of steel in Q4 of 2009 and in early 2010.
Uranium is another commodity that has strong long-term prospects despite recent price drops. In the article, Uranium remains undervalued published on 2 October in the online journal, Uranium Investing News, Melissa Pistilli writes, "While supply factors are what have impacted spot prices as of late, it’s the demand side of the equation to which investors should pay more attention. Talbot and Dundee Securities see demand rising around 2.2 per cent each year and expect demand to surpass supply within the next decade as new mines take years to come on line."
Why Outlook for Industrial Metals in Emerging Markets is Positive
The expected rise in demand from emerging economies and restrictive realities of bringing new mines to production, along with a weak dollar, should benefit miners in the medium to long-term term.
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