Profit From China's Metal Mania

Sean Brodrick
by Sean Brodrick, Resource Strategist

Iron-ore cargos to China are soaring - another sign that the Chinese economy just won't call it quits.

In fact, the economic news on China keeps getting better. Its economy is expected to grow 7.6% this year - nearly three times the pace of growth in the United States. As a result, China's imports of coal, oil, iron and other metals are rising. And this means mega-profits for some well-positioned companies.

Chinese leaders just pledged to enact market-driven fiscal and land reforms, relax investment controls and let the market play a "decisive" role in allocating resources.

That sounds like capitalism on steroids to me.

And you'd better believe that will pump up China's demand for all sorts of resources.

For now, let's focus on one metal: Iron. It's not as sexy as gold or platinum. But the profit potential is huge.

China's iron ore demand entered a bull market in July as the Chinese economy snapped a two-quarter downturn. China imported 67.83 million tons of ore in October. That's 20% more than a year earlier. And imports for the rest of the year are expected to be very strong.

There are three big companies positioned to feed China's hunger for iron. Those companies are...

  • Vale (NYSE: VALE), the giant Brazilian mining company. Vale has a market cap of $82.5 billion and is the world's largest producer of iron. It also produces nickel, fertilizers, copper, coal, cobalt, platinum group metals and precious metals. These are all things that China needs.
  • Rio Tinto (NYSE: RIO), a giant global mining conglomerate based in England. It has operations in 40 countries. Rio has a market cap of $96 billion, and along with iron, it produces aluminum, bauxite, copper, precious metals, diamonds, borates and more.
  • BHP Billiton (NYSE: BHP) is a mining behemoth with a market cap of $189 billion. Along with iron, it produces oil, aluminum, copper, precious metals, uranium, potash, nickel, lead, zinc and more.

All three of these metal-mining giants have something in common: They all feed China's hunger for metals. And they have all been beating the pants off the S&P 500 since July.

They're all doing well, especially Rio. The economic trend in China is positive. Its demand for metals should continue to go higher. Pullbacks can be bought.

It's not just iron. China's copper imports in October rose 26.4% compared to a year earlier. Oil and grain imports are both up, too.

Is this the picture of an economy in decline? No. Make that, hell no!

China will continue to be a major importer of all kinds of materials, and companies in a broad array of industries stand to win big, including:

  • Other Basic Materials Companies. I'm talking about those with an international market, especially Asia.

  • Shipping Companies. Both oil tankers and bulk freighters should do well feeding China's ravenous demand for energy.

  • International Airlines. People need to travel to conduct business, and there will be a lot more business to conduct in China.

Some things will go up faster than others... and some stocks won't go up at all.

Of course, seeing the broad trend is one thing. The global resource sector is hot... and China is blazing the path. The difficult part for investors is selecting the companies in the sector that will outperform the market.

That's why I've just launched Gold & Resource Trader, an advisory service that builds on my proprietary system for identifying the stocks in the best position to pop.

The next great bull market in commodities is poised to ignite. Don't get left behind.

Good investing,

Sean

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