Underinvestment in new supply (new mines) for years when commodity prices were low. This means that new mines ,taking years to build , won't lower commodity prices many time soon because there aren't enough new supplies coming on stream. Australia , home to 40 % of the coal used in steel making has seen flooding knock out most of the supplies to the extent coal prices have tripled from 2006 contract prices.
Australia, home to significant deposits does not permit uranium mining in several key areas and this has led to underinvestment. If the restrictions are listed it may be years before new supply is on the market.
Cameco had a huge mine site at Cigar Lake ready to begin production but flooding at Cigar Lake has postponed that production for up to seven years. This is tremendously important because it holds Cameco's earnings down and keeps supply tight. Cameco is tied to contracts- for a much as half of its production - signed years ago at prices far below the market. For this reason - low current spot and contract prices - the uranium producers are on a watch list rather than in the AMP Portfolio.
2) Expansion of Demand
China has expanded its economy at 9-10% for more than five years. India has now approached that growth rate. Both nations are building their economies by huge amounts of money spent on infrastructure - roads, energy production and telecommunications. This expansion and the export based economies have resulted in millions of jobs and thus millions of new middle class consumers. China is scouring the world and India is competing with it, to acquire oil to feed the demand for oil supplies. The same demand from China and India is responsible for the continuing demand for metals.
To see where this demand may lead you have to consider that current usage in China is one thirteenth of the that of the U.S. emerging markets are still only at the first stages of expansion. Their demand has yet to be calculated and is likely to result in continuing high commodity prices.
Electricity demand will be met ,in large part by China's own coal supplies. It is estimated that China opens a new coal fired plant every day - and most without pollution controls. Electrical transmission requires huge amounts of copper cable as well as steel transmission towers etc, etc, etc.
China opens a billion dollars of highways every month - and those roads are being filled with new automobiles and trucks that consume oil and gas. The cars and trucks require copper, steel, nickel etc. ,etc., and etc.
Specific Resource Sectors
Nuclear Power
France is the only European country not in fear of Russian demands and control over gas and oil used to produce electricity because it has a majority of its needs met by nuclear power plants. Germany is now reconsidering its plans to close nuclear plants. China will open two new nuclear plants a year for the next ten years. There are 30 nuclear power plants being constructed in the world and more being considered as a consequence of the concern over greenhouse gases being produced by gas fired power plants.
Profits in Base Metals
Imagine the "wants" of millions of consumers in the developing countries. Coxe has said that millions are now seeking what every North American enjoys - and each consumer item from cars to washing machines requires base metals. Phelps Dodge . BHP Bilton, Rio Tinto and CVRD are majors now profiting and likely to continue, Smaller producers like FNX, Fronterra Copper and Breakwater Resources offer more leverage to the pricing in today's market.
Peak Oil ?
The doomsayers have predicted that the oil was running out and oil would be at 100 dollars a barrel. Prices went to $78 and then retreated. Matt Simons book "Twilight in the Desert" details his review of engineering reports about the massive middle east oil pools. He concluded that production is or has peaked and prices will be bid up as China competes for a scarce resource. China has been expanding trade relations in Africa and exchanging its economic help and foreign aid for all manner of commodity supplies. OPEC members counter that supplies are plentiful. The current price of $ 120 a barrel has a certain terror and political uncertainty premium but how much that is- is uncertain. The U.S. is unhappy with Venezuela and Nigeria - but continues to buy millions of barrels where it can - each day. They have no choice and the world has to pay the price the market sets. Goldman Sachs now predicts a price of $140 for the last half of 2008.
Majors like Exxon, Chevron and Petro-Canada will do well but more aggressive smaller companies like Oilexco, Talisman and Devon Oil are likely to have the new discoveries that will have more impact on their share price.
Natural Gas may Exceed Oil Potential
In the fall of 2008 and winter of 2008-09 the weather will determine if the AMP plan of a pool of small producers will result in outsize profits. We are anticipating a surge in natural gas prices that will benefit companies that are leveraged to natural gas. This has started as natural gas prices have lifted from the $9.00 level to $11 in the past three months. Companies like Chesapeake were "in waiting" for this turn. Canadian juniors like Birchcliff, Vero, Crew and Accrete Energy may have further sharp increase as investors return to this sector.
Stock prices anticipate the moves in profits - build your portfolio and watch lists now.
Jack Bass, B.A. , LL.B. is the autor of several books on investing. his new book is " Building Your AMP Portfolio ".
His stock market letter, The Apprentice Millionaire Program is the basis of his seminar programs.
Full Author Profile -->
PRINT THIS
