Great Value in Global Minerals and Materials
For the last several months concerns have been rising about the slowing economic data coming out of China as the government tries to balance growth with sound fiscal and monetary policy. Some fear that the so-called super cycle of commodities that has been driven by China’s above trend growth is abating to an alarming level that could damage demand for global mineral and material companies. From an investment perspective and not that of a commodity trader, I think the recent softness in the global commodities has created great value for anyone with an outlook longer than six months.
When I combine the recent commodity softness driven by the Chinese so-called “soft landing” with the improving economic signals coming out of the U.S., I believe the global demand for copper, iron ore, and other important minerals and materials continues to be strong if one thinks about long-term demographic trends. And, while I admit that growth driven by China carried the commodity ball for the last five years as U.S. economic conditions suffered from the financial and housing recession, it now appears that U.S. economic conditions are recovering and can more than make up for the Chinese softness.
The increasing momentum in the U.S. should not be left out of the commodity equation in my opinion. Even with China’s growth over the last decade, the U.S. economy is more than double that of China and will play a growing influence on global growth over the next five years. The Labor Department recently reported the best six-month streak of job growth since 2006 while sales of previously owned homes held in February reached a two-year high. Also, we can’t forget that 2011 is an election year in the U.S. which has traditionally been positive for economic growth (real or engineered).
From a portfolio perspective, I believe it is important to research and seek material positions (sorry for the pun) in global mineral companies such as Freeport-McMoRan Copper and Gold*, and BHP Billiton Ltd*. Along with mineral companies, I include agricultural companies and gold producers in any global portfolio basket of securities. Gold prices have recently abated from the all-time high prices realized in 2011. While I expect gold prices will remain volatile over the next several months, I believe the continued high level of debt creation in Europe and the United States will continue to have a positive influence on gold prices over the next three to five years. Finally, I believe that long-term demographic trends continue to favor agricultural products and nutrients. The desire for a better quality of life around the world will continue to enhance the fundamentals for many great agricultural based companies.
While short-term trading with commodities and materials is often volatile, the long-term trends are undeniable in my opinion and I plan to use any softness to add to positions and bolster portfolios.
Have a great week,
Roger N. Steed
March 26, 2012
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