HRA Dispatch - Jan 2010
The Watched Pot
David and Eric Coffin's
Hard Rock
Analyst Journal
Posted Jan 25, 2010
Doubt that growth of the new creditor
economies is the real driver for the metals market is waning
ever more rapidly. Not everyone will view that as a good thing,
but most will now look to China for the moment and to the other
big areas of expansion in due course for cues on which direction
the sector will take. That, and recognition of very real supply
constraints, has been the HRA stance for most of this century.
So it's time for us to do the worrying.
Last month we told Dispatch readers that
we don't view China's resurgent economy as abnormal given its
high savings rate, and that concern should be more focused on
overheating of the economy. China's imports were up by 56% y/y
in December, which is mirrored by a gain of almost that much
for the year of iron ore import on a tonnage basis. It's true
that China's exports are also finally growing again with a 17%
y/y gain in December, which puts China ahead of Germany as the
biggest exporter on the planet. Chinese auto sales nearly doubled
last year, making them part of the biggest car market in the
world, which 18 months ago wasn't expected to happen before the
middle of this decade.
It is also true that some Chinese housing
markets saw 50% price gains. We aren't amongst those who call
this a bubble, at this point, since the supply excesses can be
taken up eventually by the influx from the countryside. Some
price spurts are to be expected in a rapidly urbanizing economy.
However, spurts are the leading edge of spikes, and it's the
other edge that hurts.
China is shifting to a tightening policy,
which is wise before the housing and commercial space markets
get any more heated. It is time for a check on the allocation
of capital. Like other economies, China has a large dollop of
government incentive charging it. Unlike most, it probably didn't
need as much stimulus as was supplied and, equally important,
it doesn't have a big government debt that requires things like
tax holidays be rescinded or new taxes invented to cover it.
The mood shift required to push housing prices that fast is
the real worry. That could probably use some grounding, before
it gets tied.
There has also been some heat under a
series of new exploration deals coming to market, particularly
if they encompass the building materials copper and iron. Some
are doubling before the due diligence can be finished. That
doesn't necessarily mean they are getting overvalued, and on
the whole we like it when juniors are moving higher. It's also
true that many of last year's big gainers have gone into neutral,
so this has not been exuberance at play so much as a desire for
newness. But, see above for comments about spikes and edges.
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David Coffin & Eric Coffin
Editors HRA Journal
email: hra@publishers-mgmt.com
David Coffin
and Eric Coffin are the editors of the HRA Journal, HRA Dispatch
and HRA Special Delivery publications focused on metals exploration,
development and production stocks. They were among the first to
draw attention to the current commodities super cycle and have
generated one of the best track records in the business thanks
to decades of experience and contacts throughout the industry
that help them get the story to their readers first. Please visit
their website at www.hraadvisory.com for more information.
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