Jump to content

China the monster.


kahuna1

Recommended Posts

Howdy,

 

Remember back in 1970 ... A paddle pop was 5 cents ? As a 5 year old was very annoyed when they jumped to 10 cents. Now 35 years later its $1.40 !!

 

Well back then the population of the world was 3 billion as well. Now 35 years later global population is 6.45 billion people . In other words the population has more than doubled in the last 35 years. As these people reach adulthood the whole demand and supply situation for many things is changing. It is with wry amusement I see calls for the recent spikes we have seen virtually across the board in commodity prices to stop and reverse.

 

Up until I suppose 2000 the world had enough spare capacity in most areas to keep demand and supply in balance and in fact in most areas there was a large excess of capacity. This no longer is the case in virtually all areas. Structural shortages in oil/gas, copper and many others have somewhat caught the main holders of the resources with their pants down.

 

Many even now call loud and hard for this spike and demand to ease sharply in coming years. Certainly I believe the price rises we have seen to date represent most of the rise we will see but almost without fail economists and market analysts predict things coming well off the boil from here and pick a commodity and the prices estimated by these gents is unilaterally 30-40% lower in one or two years time.

 

Today we see the combined minds if one could call them that of JP Morgan and UBS now calling coking coal lower in 2008/9. Its almost painful when one remembers the current prices for coking coal US$125 per ton this year and negotiations for the 2006 season under way right now ... In August the call from the mighty was US$100- per ton for 2006. It now appears yes prices will be lower for 2006 US$120- is the indication right now down very slightly from the record 2005 price.

 

So why are these men calling much lower prices ? Well its all off the back of China. In their estimation China will slow down and quickly. Last year its GDP growth was estimated at around 9.6% and this year it has slowed to 8%. On the question of growth for China slowing to 3-4% anytime soon is an interesting concept in light of reality.

 

At present total GDP for China is number 2 in the world at US$7.3 trillion per annum last year. This years 8% will be another US$584- billion. Now to put this into perspective the total GDP of Australia ... Everything we produce and export ect is US$611 billion. So China this year alone will grow by the size of Australia. If it was to keep going in 10 years it will grow by the total GDP of Japan, Germany, UK and Australia !!

 

Now how likely is this to happen ? USA leads the way with a GDP last year of US$11.75 trillion well ahead of China at US$7.3 trillion. If things continue the way they are China will overtake USA by 2010 ..... Maybe even for the Olympics in 2008 !!

 

Every so often we see the US based investment banks call for China growth to slow rapidly and this week was no different ... JP Morgan and Merrills and UBS whilst Swiss their experts are in the US all called for China growth to slow. Since 1990 Merrills has called the same thing a total or 5 times from memory. Wrong every single time .... Here is number 6 !!

 

So what was China's average GDP growth from 1975 to 2000 ? It was an average of 8% each and every year. So how has it done post 2000 ... Well the average is in fact 8.6%. So calls for it to slow anytime soon are interesting. My bottom line economic reality is an easy one. On a per capita income GDP basis China has 1.3 billion population and its per capita income is US$5,615 overall and the US $39,560- so China is 14.2% of the US per capita . This is on a GDP basis when one looks at individual average incomes its even worse China is 8% of the US.

 

Does China grow by the rate seen for the last 35 years for the next 5-10 years ? I suspect very close to it. Reality is most of China's workers are still rural with 800 mio out of 1.3 billion still on the land with very low per capita incomes of US$1,400- the migration to the cities is still going on and has a long way to go even from here. When a factory worker is earning twice the rural wage minimum its a mighty incentive. Mighty.

 

Lets play pretend ? Who is the worlds largest supplier to the export market for raw mineral/coal commodities ? Australia. So even were China's growth to suddenly halve to 4% the total demand for raw materials in China will grow by 50% overall in the next 10 years ... In terms of Australia's exports .... The demand best case will be 250% over 2005 in 2015. God forbid they grow at the full 8% each year because in terms of Australia's exports that's 500% increase.

 

Our market has announced production increases amounting to 150% out to 2010 which frankly I am not sure will even fill the cracks in some commodities should China grow at its normal rate. This concept is something I find both annoying and frustrating. Two months ago contract calls for Coking coal were $100- for 2006 now they are in fact going to be $120- ... But oh yes we see them coming off in 2007/8/9. Maybe so ... But when the largest growing economy is demanding 15% more this year than last and more than likely 10% in 2007 it in fact represents 100% of our total coking coal exports being demanded over and above last years totals.

 

I have used coking coal as an example of what I see as idiotic calls looking forward. India with a population of 1.1 billion has a GDP growth estimated at 4.3% this year. A handful of countries around the 80 million mark have growth numbers 7.8-7% namely Turkey, Iran and Vietnam. The same case is being pushed for virtually every commodity across the board 2008 estimates on prices are 30-40% lower. Gold, copper, Nickel, Oil, Thermal coal, Coking coal and so on.

 

China continuing to grow at 8% per annum will still see it only with a per capita income of 28% of the US in 2015 but the impact on demand for commodities across the board and especially for Australia and the large treasure holders like BHP cannot be ruled out. Pricing BHP on a P/E of 8 for 2006 estimates due to the fact some see it as a one off despite expansion plans topping 150% across the board is possibly the most interesting move I have ever seen in the markets in 20 odd years. Same for WPL ... My darling oiler.

 

If you expect to be able to buy your Paddle pop for 5 cents again as the market seem to think well I suppose being long resource stocks is not for you.

 

China is a monster but India if it ever gets its finger out ... Between the two countries they have a population of 2.45 billion or 38% of the world and very low per capitia incomes but growing. When we add the GDP 2005 growths for the top population countries along with growth together about 3 billion population contained is yet again growing at a staggering GDP growth rate of 6.3% on average. Even the US growth is up there at 3.7% ?

 

All the best and merry Christmas to all good trading for 2006.

 

Here is some background on Australian exports .

 

Australia has the third largest gold deposits in the world and is home to around 11.8 per cent of the world's economic demonstrated gold resources (more than 5380 tonnes).

 

Australia is consistently the world's largest exporter of iron ore and based on current figures is the world's third largest producer of iron ore (18 per cent)

 

Australia's economic demonstrated resources (EDR) of iron ore are estimated at 12.4 Gt, representing 9 per cent of world iron ore reserves, and around 60 years' supply at current prices and extraction rates

 

Http://www.investaustralia.gov.au/index.cf...680248D85BC075B

 

Australia is the second largest nickel producer with far greater economic demonstrated resources (EDR) than any other producer (36 per cent of world EDR with 22.8 Mt, compared with Russia, the world's largest producer, at 11 per cent of world EDR; Cuba at 9 per cent; and Canada at 8 per cent).

 

Australia has one of the largest identified bauxite deposits in the world, with current identified supplies capable of lasting 90 years at the current rate of extraction.

 

As the world's largest coal exporter in 2004 Australia produced 297 million tonnes of black coal of which 225 million tonnes was exported. The states of Queensland and New South Wales have over 200 years of identified black coal resources and Victoria has over 500 years reserves of brown coal

 

It goes on and on ... Uranium ect ect

Link to comment
Share on other sites

  • Replies 1.8k
  • Created
  • Last Reply

Top Posters In This Topic

Top Posters In This Topic

Posted Images

In reply to: kahuna1 on Saturday 17/12/05 03:03pm

QUOTE
Howdy, Remember back in 1970 ... A paddle pop was 5 cents ? As a 5 year old was very annoyed when they jumped to 10 cents. Now 35 years later its $1.40 !!

 

 

Mr Burns it looks like you may be younger than your image allows. Only 5yrs of age when you saw your precious paddle pop exploded in price. Must have been the era of hyperinflation led by the windbag himself...Whitlam the wit--(although the last laugh was on him.)

 

Good commentary. It is amazing how the analysts change their views every six weeks or so. But then I suppose they have to provide some evidence of activity. Or a means by which they can hopefully influence (or should it be manipulate) the market.

 

India is a land mass that is much smaller than China, or the US and even Australia. Many commentators tend to overlook India when commenting on China. But not all. Many others are very much aware of where India stands in the equation of world economic growth and expect greater growth from India than China.

 

As a country rich in resources with a population that is around 1.4% the population of China and 1.5% that of India, Australia is well placed to benefit from the resources boom.

 

I concur that it is difficult to see growth slowing down in the next ten years.

 

 

 

Link to comment
Share on other sites

In reply to: happy2 on Saturday 17/12/05 03:46pm

Hi Happy ...

 

41 ... Went straight into trading from school did uni part time 11 years worth. Undergrad and double masters.

 

I hear you about analyists chnaging their tune. Best call so far this year was the forbes guy at the forbes conference oil at US $40- by now ?

 

Since I was talking about coal ... and have written a little ditty on EXL.

 

About 5 months ago analyists in Australia decided the price of both thermal coal and coking coal was going to tank because demand in CHina was only going to grow by 15% for steel. Well this years contracts were set around the US$125- almost double previous year numbers. The reason is of course demand well out pacing supply.

 

So in August it almost seemed a competition to see who could make the most silly call about prices for the 2006/7 April 2006 for 12 month prices. As a group the Australian analyists dropped the call from US$120- to US$90-$100-. NPV values for most coalers were slashed and for example EXL price went from $8.70 to where it is now $6.10.

The market in Australia bought into this one. Long term prices post 2006/7 were slashed to around US$70- which when it costs US$70- for an expensive underground mine to mine and ship coking coal the margins would be cut in a large way to virtually zero.

 

So too were the costs with exort thermal coal prices which cost far less to produce than coking coal ... but the same stuff went on and in fact is still priced into many producers share prices. The same call for 20% plus falls this year in both ....

 

Reality ....

 

yes slightly down ... 4% whoopee ....

 

http://www.financialexpress.com/fe_full_st...ntent_id=108398

 

Margins for a decent coal producer coking coal ... are at this level around AUD$70- a ton!

 

EXL ... since these prices are being locked in for the period April 2006 and 12 months beyond almost the 2006/7 financial year EXL will produce just over 3 million tons of coking coal and due to its 85% stake in Millenium ... around 2.75 million tons .... at $70- per ton profit well I expect the old pointy headed analyists to re sharpen their pencils again because it would appear a far cry from their calls right now ... coking coal alone around $192 mio profit and with the opening and expansion of their thermal coal division with the opening of the Wilpinjong project which will produce at up to 9 million tons of thermal coal per annum ... in other words more than doubling the current production levels of thermal coal .... well lets just say ad 20 mio for the 6 months from Jan 2007.

 

 

Some of the serious downgrades the market has bought into hook line and sinker in the last 4 months on coalers .... well analyists have some serious reversing of their numbers to come.

 

Of course EXL stands pretty much alone with not any great problems even like my dear crows ... CEY which had production problems ... or MCC which is a danger to itself.

 

Analyists ... phoohey ....

 

If you read the article ... still they call it lower in years to come ... all off the back of demand stopping dead and supply increasing. reality with many of the poorer nations experiencing massive jumps in growth and lots of room to move higher even double or triple per capitia income over the next 10-20 years ... its all going to stop.

 

Calling coking coal back off another 20% in 12 months is like the scare campaign waged in Australia in recent times about thermal coal dropping 25% and coking coal by 20% ... reality is they dropped by 4%. But still they persist.

 

Global population alone is the driver behind most of this.

The rest is a country with 1.3 billion going from very very poor to 8% income compared to the US ... maybe 15% by 2015.

 

1970 ... 3 billion

2000 ... 6 billion

2010 ... 7 billion

and it is topping out but 8-9 billion in 2040 depending on who you believe is a far cry from say the adult population in 1970 and consumers of all types of minerals and resources.

 

Just something to keep in mind.

 

Suppose for many it is much easier to be critic's or bears or negative .... it was all around the time of the height of the bird flu and terrorist scare media blitz and I suppose the coal industry estimates must have caught it.

 

Cheers

 

 

 

 

Link to comment
Share on other sites

In reply to: kahuna1 on Saturday 17/12/05 03:03pm

kahuna,

 

$1.40 - kahuna who are you buying your paddlepops from?

 

I can buy a ten pack of paddlepops at the supermarket for about $4.00

 

(China the monster, actually some of my Chinese friends are very nice people http://www.sharescene.com/html/emoticons/tongue.gif )

 

D

Link to comment
Share on other sites

In reply to: dee27 on Saturday 17/12/05 06:49pm

What is the pre eminent China Play ??

 

What is geared to the Chinese economy and CURRENCY ???

 

This is a factor not considered

 

will china currency float ?? will it revalue ??

 

I hold BHP RIO WPL But the china play that stands out in mile high banners

 

And will earn you Chinese currency as well

 

would have to be SSI

 

 

But Do your own research ...

 

As I see it SSI is well on it's way to S&P 300 and becoming a mainstream stock

 

But Why wait for prices that would prevail ( if ) then ??

 

View opinion and of the moment

 

motorway

Link to comment
Share on other sites

In reply to: motorway on Saturday 17/12/05 09:30pm

CHINESE like to gamble. Lucky numbers, fortune cookies, etc. Superstitious lot. Even if they are hard workers.

 

I met one man who worked in Chinatown who made more money at the casino playing blackjack than what he made working as a cook. 10hrs in Chinatown, 2hrs at the casino.

Link to comment
Share on other sites

Haha ...

 

Dee $4- for a pack of 10.

Wow being ripped off at the local milk bar ... will go and complain right now :}

 

SSI ... I threw them in the trash bin many years ago. I do note the massive 20 fold increase this year. Not for me thanks. Despite the Chinese driving things ... I have seen so many investing and operating in China loose I tend to stay well clear of them.

Different for a company selling something they desperatly want or need and in the case of resources cant copy at a fraction of the price.

 

Gamblers ... blackjack ... even playing perfect blackjack the odds are in the houses favour by 1%. Counting cards ... on an 8 deck shoe ... the man if correct must be a very good counter and we all know how casino's love card counters. You can play as long as you don't win.

 

Reminds me of CFD's providers. Buy your shares on credit and the CFD provider like a casino is taking a bet you will loose and be wrong whether you go long or short and they will be able to cover your position at a profit. In fact sometimes when you buy ... and all their other clients buy ... the CFD provider enters the market and sells triggering margin calls and stop losses till his position is either in profit or he is long relative to the market.

 

As to China ... or India or the growing world population its a case for me of scarce commodities and economic growth in the countries with low per capita income which will drive things in the future. This is opposed to direct investing in them. So many times has it happened ... different rules of operation , bribes corruption theft ..... how many companies have tried and failed in China ? Sounds great the 1.3 billion number but the ones long term who make a go of it are outnumbered 3 to 1 by those who walk away with their tails between their legs. Recent years the two big classics Fosters and Telstra in HK. Yikes ....

They frankly operate on a different wavelength to us in terms of business.

 

Hahah ... my 40 cent paddle pop !!

Link to comment
Share on other sites

Hi kahuna

 

What do you make of these comments by Hunter Hall fund manager Peter Hall( quoted from an interview in Masters of the markets second edition) :

 

" I don't think resources can outperform over the medium to longterm, apart from the oil and gas sector. It seems to me there is no shortage of the main materials, so current price rises are of the nature of a spike driven by bottlenecks that will be ironed out in the next two or three years.Then pressure to grind down prices will resume.

 

"iron ore is a commodity but it requires major capital investment. i think an interesting game may be underway with the big consumers encouraging producers to make major capital expenditure to lift production by paying higher prices for a few years.Once production capacity has been increased, pressure to drop prices will resume.the projects will have long lives but i doubt they will earn excess returns over their economic lives."

 

Interesting comments. the Chinese were less than impressed with the massive price increases for iron ore this year and once the supply has been ramped up to match demand, I am expecting no mercy to be shown.

 

Cheers Dee

 

Ps Went to the local supermarket this morning and the 10 pack of paddlepops are now $5.00. Must have been on special last month.

 

pps IFL moving up nicely last week

Link to comment
Share on other sites

QUOTE
SSI ... I threw them in the trash bin many years ago

 

You and A lot of other people

 

But then that is why you could buy them at .12

 

At all times and all places

 

people have had to tell themselves stories and devise rituals and myths

 

To remind themselves that things go in cycles

 

That acorns grow into oaks

 

That ugly ducklings are sometimes really swans

and It IS the way you look at things that matter

 

That the alchemical gold was found in the dung heaps

 

That the stone the builders rejected etc became the corner stone...

 

SSI at .12 had a mkt cap of $2 mill (aprox )

 

Yet it had a stable capital structure and management

 

Was able to fund itself And was listed for what is now 18 years..

 

 

 

Have you looked at the academic research on the returns achieved

in investing in such companies ??

 

I have and had ...... People are always focused on the short term

something might be a powerhouse next week

But IF Everyone's horizon is only tomorrow

 

There is value for the few to be find...

 

Ok then if you actually looked at what was happening

Nothing is static... Good companies are always moving forward

Yet there share prices can and do become static and enter trading ranges

 

That is just another way of saying OPPORTUNITY..

 

 

SSI now ?? Buying has conviction and urgency

 

If a majority of investors share your view

 

That means only one thing...This might be better than even I am anticipating..

 

 

Always look at the effort Vs the result..

 

the effort behind buying and selling and the effect that has on price..

 

SSI is in My opinion Number one china play

 

Always as been ..

 

It is a direct play... economy and Currency...

 

Kahuna...... What else are you throwing into the trash ??

 

There could be gold there

 

By definition great investments have to be ignored riduculed and avoided

 

Stocks at their nadir in the 1930's

 

By definition poor investments have to be universally bought hyped and glamorous

 

NASDAQ at it' peak........

 

That is stocks as INVESTMENT not as Business

 

( A good business at a too high price is a poor investment )

 

 

At the top Lot's of Volume but little result.... Churning

At the start of the boom little Volume But it starts to move price..

 

SSI ... that stock that still gets trash can comments

 

That alone would suggest.... start and not the end..

 

But Do your research

 

 

And anything you dismiss to the trash PLEASE tell us

opportunities like SSI are too good to miss...

 

motorway

 

Link to comment
Share on other sites

In reply to: dee27 on Sunday 18/12/05 10:37am

I would agree with Hunter Hall. Having been a geo for over 30 years and also with a masters in mineral economics I have seen a number of booms and they always end in busts.

 

The issues are

 

World demand for commodities, which appears to be the China factor. This is the steady but impressive growth and I cannot see it slowing for some time. India - the amount of foreign investment is minimal - too many left wing, nationalistic governments to change things. India's growth is coming from IT and call centres, both driven by English language skills. The infrastructure of India is decades behind and not much is being done about it, but at least they have started.

 

Supply - how fast can supply increase to take advantage of the recent increase in demand and prices. This is the key issue and I have yet to see figures on how fast supply is gearing up to meet the need. I know that a number of very large mines currently in production are expanding and a very large number of companies owning prospects are working as fast as they can to get into production in the next year or so. In the end they will come into production and it will be an overkill as has happened every other time before and prices will fall. Each time it does fall it falls lower than previously. The long term trend for metals prices in real $ is down. All metal company investments should be considered short to medium investments only. That is unless they are unusual - a very high grade deposit, an unusually rare metal, a major supplier in the world market that can influence prices. There are few of these.

 

It makes sense for China to push prices up in the short term (even if unintentionally). Lots of production comes on stream and prices are pushed well down in the medum to long term. The Japanese did this by having some influencial govt dept publish a report showing that demand was going to increase by XX%, so Australian and world producers geared up and instead found that demand had changed little so that they had excess capacity which drove prices down. Japanese companies also took small equity stakes in mines. The aim of which is to gain access to data on production costs.

 

Oil, yes I think it is an exception. Most oil exploration is in difficult areas and takes some time and $ to find, prove and develop. With the exception of some frontier areas (HDR's Guyana ?) most of the increase in production will not make much of a ripple on international markets. It would be interesting to see, given the massive increase in oil prices and exploration, how much oil has been discovered in the past year.

 

World supply is 84MBls/day or 30,660MBls/year (http://www.worldoil.com/INFOCENTER/STATISTICS_DETAIL.asp?Statfile=_worldoilproduction) using data for August 2005 (Note: Summer). A major discovery at Guyana of 2,500MBls is a month's supply for the world. Ching is 1 1/2 to 2 days depending on reserves.

 

Coal may be another exception. I work in a coal mining area and the pollution is extreme, let alone the safety issues. Coal and gas imports are required urgently.

 

RE: China

 

I am currently in Shenyang in NE China and work further N (about 1000kms N of North Korea). Trying to get something, anything - done takes an enormous amount of time and effort. Forget schedules here, it is like trying to run in mollases.

 

Having seen the Russian example of political freedom but economic chaos, they are happy with the model they are using. They are spending big on infrastructure and it is extraordinary. I can stand on the prospect which is in the middle of nowhere and use my mobile phone. The very small town I am based out of has broadband. I have yet to see anyone who doesn't have a mobile. Cities have 8-10+ lane roads in the center of town - compare it with the centre of Sydney which is designed for 2 horse-drawn carrages. Look at the Sydney airport issue that has been going on for 20-30 years and a national disgrace - no one will make a decision. In China some unknown person will make a decision that a new airport is needed and it will be built and very quickly.

 

Re: Corruption. Nearly every 2nd day the Chinese paper has a story of some person being executed for corruption. Does it act as a deterrant? - I am not sure, but as someone said it makes sure there are no second offenders.

 

I have heard some horror stories about Australian companies that have worked or are working in China and there are a number of companies I would not touch. I am NOT refering to SSI which I am not familiar with.

 

 

G

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

×
×
  • Create New...