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A Big Commodity Trade for 2013

By Matt Badiali, editor, S&A Junior Resource Trader
Wednesday, January 2, 2013

More great news for commodity investors... 
 
Early last month, I showed you a new upswing in the price of copper. China – a major copper consumer – is manufacturing more goods and increasing exports. That's going to support copper prices... 
 
And it's showing up in iron ore prices as well. This could be a big commodity trade for 2013... 
 
Iron ore is used in nearly everything, from building materials to consumer appliances. As the global economy sputtered in 2011 and 2012, the price of iron ore was cut in half.
 
The chart below shows the price of iron ore at the largest port in Northern China, Tianjin. Tianjin is the world's fourth-largest port and the main import terminal for Beijing. Iron ore prices here tell us a lot about global iron ore demand.
 
Tianjin's iron ore prices peaked in March 2011 at more than $190 per metric ton... then fell 54% to a September 2012 low of $86.90. But in the last three months, the price of iron ore at Tianjin is up 67%...
 
 China Iron Ore Prices Show a Huge Rebound
 
As China's economic growth sagged and iron ore prices fell, we saw many major mining companies cancel major new projects. Fortescue Metals Group (ASX: FMG), the giant Australian iron ore miner, fired 1,000 workers and canceled its $9.3 billion Kings iron ore mine development.
 
By August, many analysts and experts cited the collapse in iron ore prices as a sign that the "commodities super cycle" was done. The commodities "super cycle" refers to three to four decades of growth in commodity demand, spurred by globalization and the rise of China. If it is dead, commodity investors will need to adjust their expectations.
 
But in a recent note, Colin Fenton – head of commodities research at JPMorgan – called this year's volatility in natural resources just a "temporary consumption slump"... not – as many investors worry – the "conclusion of a multi-decade investment boom." 
 
The recent downturn in China's economy reflected the economic woes of the nations that consume its goods... like the U.S. and Europe. But since August, things have been looking up as demand for copper, iron ore, and coal has surged...
 
Demand has increased so much that on Friday, December 21, iron ore stockpiles at China's major ports fell to a two-year low – just 73.8 million metric tons. The stuff is moving again... Commodities – and China – are beginning to rebound.
 
I agree with Fenton. The enormous recovery in iron ore prices – plus a recovery in copper – is a sign that commodities weathered a simple move lower in the larger super cycle. And that means commodity investing could be looking up for 2013.
 
As longtime Growth Stock Wire readers know, commodities move in cycles. And as we've discussed, the key to making money in commodities is to get in the cycle early. That is right now for iron ore. 
 
While we're early in the uptrend, giant iron miners like Vale (NYSE: VALE) and Cliffs Natural Resources (NYSE: CLF) are beginning to rally from recent low prices. And these companies are cheap. Right now, they trade for about five times estimated 2013 cash flows, according to Bloomberg. That's far lower than they traded back in 2009, which was the bottom of the market for resources.
 
These companies, which will produce much larger profits from the recovered iron prices, offer outstanding rewards with only modest risks.  
 
If you are looking for a good commodity trade for 2013, consider iron ore.
 
Good investing, 
 
Matt Badiali




Further Reading:

Like iron ore, Matt believes there are two other resource investing opportunities set to move higher. Find them here...
 
Matt shares his favorite ways to profit off a bullish uptrend in copper.
 
It's almost time for this trend to turn. And when it does, you'll want to own these companies.

In The Daily Crux
Market Notes
Stocks finish 2012 up double digits... despite a recent pullback, the S&P 500 is up nearly 12% this year.
 
Natural gas trusts continue to struggle... Mesa, San Juan, Sabine Royalty, and Permian Basin are all down 20%-plus this year.
 
Mortgage REITs Annaly and Hatteras are still dirt-cheap... both companies are trading more than 15% below book value.
 
Ag giant Monsanto soars... shares are up 35% since May.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1359.88 +0.5% +9.9%
Oil (USO) 31.93 +1.4% -18.8%
Gold (GLD) 165.88 -0.1% -3.3%
Silver (SLV) 31.21 -1.0% -4.9%
U.S. Dollar 81.18 0.0% +4.0%
Euro 1.27 -0.6% -5.6%
Volatility (^VIX) 16.41 -8.8% -51.0%
Gold Stocks (^HUI) 440.85 +0.9% -24.7%
10-Year Yield 1.57 -1.3% -22.3%

World ETFs
Symbol Price
Change
52-Wk
Singapore (EWS) 12.76 +2.6% +17.5%
India (IFN) 21.53 +10.3% +7.3%
S. Korea (EWY) 56.65 +0.4% +7.6%
S. Africa (EZA) 64.65 +3.6% +9.3%
China (FXI) 35.77 +0.4% +1.8%
Taiwan (EWT) 12.69 +2.1% +7.4%
USA (SPY) 136.37 +1.2% +13.1%
Japan (EWJ) 9.06 +2.9% +2.7%
Russia (TRF) 13.68 +2.7% -11.2%
Canada (EWC) 27.10 +1.9% +2.9%
Israel (ISL) 12.45 +2.1% -1.7%
Lat.America (ILF) 40.87 +1.5% -4.0%

Sector ETFs
Symbol Price
Change
52-Wk
Construction (PKB) 15.81 +2.3% +37.0%
Media (PBS) 15.66 +1.2% +23.2%
Financials (IYF) 57.01 +1.3% +22.3%
Water (PHO) 19.09 +1.2% +13.7%
Consumer Svcs (IYC) 83.17 +1.4% +21.1%
Insurance (PIC) 16.65 +0.8% +13.7%
Health Care (IYH) 81.37 +1.3% +21.9%
Telecom (IYZ) 22.91 +1.0% +14.3%
Real Estate (IYR) 61.89 +2.4% +17.7%
Big Tech (QQQQ) 62.30 +1.0% +10.8%
Defense (PPA) 19.53 +1.2% +10.9%
Retail (PMR) 24.59 +3.0% +18.1%
Industrials (IYJ) 68.59 +0.9% +11.6%
Software (PSJ) 25.98 +1.1% +4.2%
Biotech (PBE) 22.19 +1.7% +16.4%
Basic Mat (IYM) 63.96 +1.1% -0.9%
Transportation (IYT) 86.80 -0.2% +1.1%
Semis (PSI) 13.12 +1.2% -8.8%
Utilities (XLU) 34.36 +2.0% +3.6%
Nanotech (PXN) 5.44 +0.3% -13.9%
Alt. Energy (PBW) 3.53 -0.3% -34.6%

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