The Rising Influence of Rising Affluence

[dewophile]

This may be of interest to some on this board. I don't own any NR stocks, but took note of the recent decline - particularly in the industrial mining stocks. I was somewhat surprised then to see that iron ore prices have actually gone up, and the main driver of demand - china - is unlikely slow down. My interest goes beyond what seems to be this paradoxical drop in stock price relative to pricing of the product sold in that a hard asset should withstand (and if anything appreciate) if the US dollar depreciates as many forsee. any feedback appreciated before i dip my toe into this market

http://www.theaustralian.com.au/news/nation/stocks-defied-export-commodity-prices-lift/story-e6frg6nf-1226111980165

Stocks defied: export commodity prices lift

WHILE shares have been plunging across the world, the prices of Australia's key export commodities have been quietly rising.
The benchmark iron ore spot price has risen from $US174 ($171) to $US178 a tonne in the past two weeks as China's steelmills start trying to build stocks to meet surging demand.

Although the coal market traditionally tracks the oil price, which has weakened in response to the turmoil, ANZ commodity analyst Mark Pervan says there has been very strong demand for thermal coal out of China and Japan, both of which have been suffering power shortages.

The strong demand for the bulk commodities contrasts with 2008, when spot prices for iron ore halved following the collapse of Lehman Brothers.

EC&L Baillieu's head of research, Ivor Ries, noted that even oil had not fallen heavily. Although the West Texas benchmark price for oil dropped to just $US80 a barrel, Mr Ries said very little oil was traded at that price. The benchmark price in Asia, the Tappas index, is still at $US109 a barrel.

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Mr Ries said it was too early to tell whether the sharemarket turmoil would eventually take its toll on commodity prices but he thought it was unlikely to knock Australia's resources boom off course.

"So many projects are committed with a buyer signed up to a take or pay contract and bank finance in place. At that point, nobody is going to suspend a project."

Mr Ries said $140 billion worth of LNG projects had been approved and were placing orders for materials.

Mr Pervan said the resource market had become much more dependent on the Chinese market in the three years since the global financial crisis. China's share of world steel production has risen from 42 per cent to 58 per cent while the combined share of the US and Europe has fallen from 17 per cent to 10 per cent.

"If we see contagion of this crisis into Asia, we'll see a correction in commodities prices but at this stage, that isn't the case."

He said China was much less sensitive to US consumption patterns. In the first half of the year, China was a net importer, so exports are no longer driving its economic growth.

Domestic consumption and, overwhelmingly, domestic investment, are the main sources of China's economic growth and these should not be affected by turmoil in the West.

Figures released yesterday show China's retail sales were up by 17 per cent in the year to July while business investment leapt 25.4 per cent.

Mr Pervan said the steelmills were scrambling to get supplies because India, the third-biggest exporter to the Chinese market, has restricted its sales.