Saturday, December 4, 2010
We're long commodities, coal in particular, because we think China's demand will drain the world's supply. Now, one of the richest families in the world agrees with us...
Hedge-fund manager Nathaniel Rothschild, of the prestigious Rothschild family, is trying to build the largest coal company in the world... He's leading a $3 billion takeover that would merge Bumi, Indonesia's largest coal producer, Berau Coal, another Indonesian coal company, and Vallar, Rothschild's investment vehicle.
"Indonesia is a sleeping giant," Rothschild says. "One scratches one's head to think why isn't there a mining champion out there already, and hopefully we are in the process of showcasing one in the years ahead."
What does Rothschild want to do with the coal? Export it to China. To pull off the deal, he's leveraging his contacts in the industry (Ivan Glasenberg, head of the biggest commodity trader, Glencore; Russian aluminum billionaire Oleg Deripaska; and Barrick Gold Chairman Peter Munk) and his personal commodity knowledge (he excelled in commodity trading at hedge fund Atticus Capital).
"There's no global coal company today," Rothschild said. "There's not a Barrick Gold [the largest gold miner in the world] in coal. That's where the opportunity is."
In last month's Stansberry's Investment Advisory, Porter discussed China's growing demand for coal. China is now the second-largest consumer of electricity behind the U.S., and 78% of its production is coal-based. China consumes three times more coal than the U.S. – more than 3 billion tons a year. But it only has around half of the U.S.'s coal reserves. In other words, China must import lots of coal. Here's more on the situation from Investment Advisory...
Current market surveys show China will import 150 million tons of coal this year. That's only 5% of China's total coal demand, but it represents 15% of the total U.S. demand. Right now, almost all of this coal comes from Australia, where China takes up about 60% of the export supply of coal.
China's coal imports doubled in the last year... We know total power production in China is scheduled to double over the next eight years. It's building a new coal-fired plant nearly every week. The United States has built only 12 new coal-fired power plants since 1990. Assuming China's coal imports double again (and they will), Chinese demand will exhaust Australia's export capacity. And when China's import demand doubles again after that (to 600 million tons per year), it will exhaust the world's total export supply.
Porter's recommended coal play is already up 20%. The stock is out of its buy range, but Porter's favorite way to play the coming food crisis (another problem rooted in China's growing commodity demand) is still a bargain.
Earlier this month, one of the richest men in the world invited Porter to a secret meeting in New York to discuss global food security.
The guest list was impressive – a senator, CEOs of major U.S. firms, the world's top investors, and senior government officials. You'd recognize their names.
The attendees agreed... we're going to see food shortages. Between the U.S. (the world's largest corn and wheat exporter) allocating crops to alternative uses like ethanol, and China's growing demand (China was a net importer of corn for the first time in 16 years), we'll see higher prices.
An interesting article in the Financial Times says the U.S. Department of Agriculture (USDA) is underestimating the amount of corn Russia and China will import in coming years... The USDA estimates Russia will buy one million tonnes of corn from overseas in 2010-2011. Argentina, which sent an official delegation to Moscow to discuss a supply contract, said Russia is actually looking for three times that amount – 3 million tonnes. This would be the first time in 30 years Argentina has sold corn to Russia.
China is already importing huge volumes of corn – it purchased 1.3 million tonnes in 2009-10. And the USDA expects another roughly one million tonnes in 2010-11. But top agricultural traders think the expectations are too low...
"Believe me, the local market in China is very, very tight," said one senior trader for a top agricultural trading firm. According to the article, as little as 500,000 tonnes of extra supply or demand for corn can swing prices dramatically. If it turns out China is stepping up its purchases like we think, we will see food prices soar.
What you're not hearing about in the Financial Times is that soaring demand isn't the biggest driver in the food shortage... It's the global race to devalue currencies.
In the latest issue of Stansberry's Investment Advisory, Porter and co-editor Braden Copeland tell you exactly which investment will skyrocket during this global catastrophe. It could be one of the most important investments you make this year. Click here to learn more...
Date Range:11/25/2010 to 12/2/2010
Date Range:11/25/2010 to 12/2/2010