The continuing industrialisation of China and India will lead to a strong demand for commodities such as oil, metals and even coal for years to come in the opinion of the investment strategists of BIAS.
BIAS Senior Investment Strategist Robert Pires told attendees of the firm’s Quarterly Market Briefing at the Westin Casuarina Resort last Friday that China and India accounted for 38 per cent of the world’s six billion people and they already use 49 per cent of the world’s iron ore.
The combined bloc of those two industrialising countries was referred to as Chindia by Mr. Pires.
‘The premise is that Chindia will shape the commodities market over the next two decades,’ he said.
By the year 2020, Chindia is expected to consume 20 per cent of the world’s oil production. Mr. Pires said oil consumption per capita has historically risen rapidly during the early stages of industrialisation, which both India and China are in.
The per capita consumption of oil by the Chindia bloc is still relatively low.
Mr. Pires said per capita consumption of oil would be expected to follow the same pattern that occurred in the United States, Japan and South Korea when they industrialised.
‘You should see a sharp spike upward,’ he said.
There are other critical drivers for oil prices besides the emerging economies of China, India and other countries. These drivers include a lack of exploration for new oil sources; OPEC’s restricting of the oil supply; geopolitical unrest in places like the Middle East; and the Green Movement. All of those drivers argue for higher oil prices, Mr. Pires said.
Chindia’s vehicle penetration, or the percentage of the population that has automobiles, is extremely low but is expected to rise as real income growth accompanies industrialisation.
The average family sedan uses 44 pounds of copper, 280 pounds of aluminium, 44 pounds of nickel, and 1,400 pounds of carbon steel, which is made using 2,200 pounds of iron ore and 880 pounds of coking coal, Mr. Pires said.
‘There will be a tremendous increase in demand for these commodities as India and China continue to develop.’
BIAS Investment Advisor Mark Stuckless said there were many other metals that would likely have strong demand in the coming years, leading to hot market in the mining sector.
Because there is a strong demand for nuclear power plants, uranium prices have risen sharply over the least two years.
‘For one, people don’t want to rely on Middle Eastern oil or Venezuelan for that matter, or even Russian oil,’ Mr. Stuckless said.
Another reason the demand for nuclear power plants is rising is because people have realised the damage burning fossil fuels for energy does to the global environment.
Mr. Pires said that even environmentalists, who used to be strongly opposed to nuclear power plants, now prefer them to those burning fossil fuels.
Another metal expected to have a strong demand over the coming years is cobalt.
‘That market is being driven by the demand for rechargeable batteries,’ Mr. Stuckless said, adding that cellular telephones use rechargeable batteries.
A good sign for continued growth in the mining sector is the significant increase in the amount of mining exploration in recent years.
‘There has been a massive amount of investment into commodities, which will lead to growth,’ Mr. Stuckless said.
Profitable investments into the mining sector can be made during the discovery phase, but share prices tend to drop during the development phase as companies invest heavily in infrastructure, Mr. Pires said.
‘There’s a time to get out and a time to get back in,’ he said, referring to the production years, which also have lower risks for the individual investor.