Thursday, February 22, 2007

Miners Looking to Up Investments

From the WSJ:

Prices for some of the world's commodities have slipped in recent months. But big mining companies continue to pump up investment and make plans to carve out more mines -- moves that could bring prices down further in the years ahead.

Anglo-Australian giants BHP Billiton Ltd. and Rio Tinto PLC and other megaminers collectively have projects valued at tens of billions of dollars in the works.

Among them are large expansions in production of iron ore, coal, nickel and other raw materials whose prices have soared in recent years amid demand from China and elsewhere.

The article goes on to note one of the primary reasons for the increase is China's continued growth. While the article did not mention India, I would guess that country's growth also plays into the equation.

Let's take a look at the Copper future's chart:

Photobucket - Video and Image Hosting

Copper dropped in price starting in May of last year. There were a large number of reasons for this drop. Inventories were high. In addition, a ton of money has flowed into the commodities markets over the last few years. In essence, commodities have become the high-tech growth area of this bull market. While there are strong fundamental reasons for this increase (largely related to China and India coming on line as growing economies), there were also a large number of hedge funds etc... moving in. This pumped up commodities prices, perhaps above their actual worth. Be that as it may, China and India are still growing at high rates. That's almost 2 billion people who are seeing an increase in their wages and standard of living who will probably want all sorts of consumer stuff. In other words, these growing economies provide a natural floor to some of these prices.

Here are some industry charts from that show some of the better performing industries. These are 5 year charts, which really show the bull run these stocks have experienced:

Copper companies:

Photobucket - Video and Image Hosting

Steel and Iron

Photobucket - Video and Image Hosting

Metals and Mining:

Photobucket - Video and Image Hosting

Industrial Metals and Mining:

Photobucket - Video and Image Hosting

Obviously there is no guarantee these sectors will continue to move-up. But the fact that industry members are willing to open their wallets and start to increase capacity indicates they are bullish on the future.

Food For Thought.