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Emerging Commodities Market Signals Renewed Investment Opportunities

|Includes: BHP Billiton Limited (BHP)
-- Recent news regarding the picture of the economy is indicating with more regularity the strengthening interest in commodity prices and the confidence the global market is fostering on their behalf. As with any global cycle, the period following a downturn is usually followed by a period of market congestion and consolidation as it digests developments arising from commercial reporting, bank network debt funding and government spending projections.
-- Recently we have seen the market vote to accept recent developments in the transparency of the Euro situation of debt funding for sovereign wealth, (even now we are beginning to hear about the full disclosure of Euro-commercial earnings reports, some of which are in deep red territory), by responding to continue to trade up the market sentiment and add value based on local forecasts.
-- Add to this the move in emergency funding rates by the US Fed of 25 basis points, even in the face of seemingly fragile employment and manufacturing figures, and the market is interpreting this also as a positive sign that strength is returning back to the economy.
And here is the signature statement in the midst of this activity as quoted by Frank Holmes of US Global Investors,
“Simply put, an investment in natural resources is a vote of confidence in global economic growth”
The emerging confidence in the safety of commodities is gaining momentum, especially in the local Australian market, as reports of sustained long term demand throughout 2010 filter in from China and India on the back of initiatives such as:
§         US$500 billion to expand it’s highways, airports and other transportation infrastructure assets by 2012
§         Urban population expanding by an average of 3 million people per week for the last 20 years
These two stats reflect the ongoing urbanization of China and India’s population as a strategy to centralize it’s labour force for the purpose of maximizing labour productivity.
-- More than 25% of China’s population are now considered within the traditional middle class of society (more than the total US population) who are realizing a greater power of choice and subscribing to improving ownership of ‘leisure assets’ over time to improve lifestyle quality. This is a significant emerging trend, upon whose demand the manufacturing powerhouses of China and India will grow to meet this consumer demand, not just at home but also abroad as well.
-- Consider also as inflation begins to renew it’s appearance as the economy grows through demand for goods and services, putting pressure on the cost of supply for raw materials that inevitably leads to pressure on wages and the cost of living, the steam in commodities can only be vented by central banks tweaking the interest rate levers against available commercial financing to harness the reins and control the growing economy.
-- Recently, commentators, some of them very noteworthy, have begun to identify companies whose exposure to the commodities markets are considered a good investment as we approach the horizon of a new resurgence in demand.
“If you want a core position in the resource boom, the easiest approach would be to buy shares in BHP Billiton (BHP). The company is exceptionally well managed and diversified across most commodities. The majority of its mines are in Australia, a nation which should also benefit this century from being resource-rich and close to China.”  Dr Stephen Leeb, 17 Feb 2010.
“The company (NYSE:BHP) operates in virtually every corner of the world, including Canada, and is perfectly positioned to take advantage of both emerging market growth and future inflationary pressures which will drive up the cost of commodities worldwide.” Glen Rogers, 22 Feb 2010.
“This year, with nightmares of economic Armageddon having largely abated, base metal spot prices up across the board, and Chinese steel output at record levels, iron ore producers are back in the driver's seat. Indeed, China's continued appetite for seaborne ore will be the biggest demand-side driver of benchmark price negotiations.” Morningstar, 22 Feb 2010.
-- Looking forward to the remainder of the year and 2011 in the commodities markets, we are going to see continued rising demand from the emerging economies group led by China and India, as recently supported by comments included in the recent IMF World Economic Outlook Update released on 26th Jan 2010.
“Growth in emerging and developing economies is expected to rise to about 6 percent in 2010, following a modest 2 percent in 2009. The new projection reflects an upward revision of almost 1 percentage point. In 2011, output is projected to accelerate further… …Commodity prices rose strongly during the early stages of the recovery, despite generally high inventories. To a large extent, this was due to the buoyant recovery in emerging Asia, to the onset of recovery in other emerging and developing economies more generally, and to the improvement in global financial conditions.
Looking ahead, commodity prices are expected to rise a bit further supported by the strength of global demand, especially from emerging economies.”
--The opportunities that exists for market participants who are actively looking for trading opportunities over the remainder of 2010 will continue to resurface many times as the advanced and emerging global sectors grow and demand intensifies towards the end of this year.