Although we've been treated to an endless parade of doom-and-gloom scenarios about China's economy, reports out over the weekend showed surprising strength in some important corners. Crude oil imports, iron ore, and copper -- all key components of industrial growth -- showed exceptional resilience in September.
Oil imports jumped 28% year over year to 6.3 million barrels per day, surpassing the record set back in July and positioning China to overtake the US as the world's biggest importer. Iron ore -- the essential ingredient in steel production -- hit a new all-time high of 74.6 million tonnes last month, up 8% from August and 15% higher than last year. Indeed, steel production itself was running hot, with daily runs above 2.14 million tonnes in the first three weeks of September, ahead of August's daily figure of 2.13 million.
Copper as well reached its highest levels in China in more than a year, as imports of anode, refined copper, alloy, and semi-finished copper products surpassed 457,800 tonnes. That's the the highest it's achieved since March of last year, and is 16% greater than the level hit in September 2012.
All that was good news for miners, particularly those specializing in iron ore, who have been enjoying a recovery in their shares over the past few months and were in need of some reassurance that the momentum would keep going. The world's largest iron ore producer, Vale (NYSE: VALE ) , which derives nearly 70% of its revenues from the mineral, saw its shares add 4.5% yesterday on the good news. Number 2 Rio Tinto (NYSE: RIO ) , which counts on iron ore for about half of its revenues and virtually all of its earnings, added 1.7% on the day.
The same scenario played out in the copper markets as well, as Southern Copper jumped 3% and Freeport-McMoRan rose 1.3% on the day.
China remains the straw the stirs the metals drink, accounting for two-thirds of all seaborne iron demand, almost half of the world's nickel, and more than 40% of copper.
The need for iron ore, though, was leading producers to shed their other assets and focus more intently on producing the steel-making ingredient. Both Rio Tinto and BHP Billiton (NYSE: BHP ) have announced plans to exit certain projects and expand their core ore-mining ones, though the influx of assets on the market has made it hard to realize top dollar for them.
With BHP selling its Jimblebar mine in Australia, Brazil's MMX selling its Chilean project, and both Australia's Fortescue and the U.K.'s Stemcor selling off their own mines too, Rio has been unable to find a buyer for its 59% stake in its Canadian iron ore assets, the country's largest producer of iron ore.
Rising demand may certainly help the bidding process and take some of the sting out of the loss of non-core business. Analysts still can't shake their dour outlook, however, as they note that China's exports fell 0.3% at the same time it was importing more, a sharp reversal from the 6% increase anticipated.
As positive as these developments appear, I don't think the good times can last. The amount of ore imports China is taking on is running full tilt, despite steel inventories at overcapacity. Through the first six months of this year, production was running 7% ahead of its rate the same time last year, and the country's domestic producers are anticipating profits to fall 50% or more due to lack of demand. Prices remain depressed, and the situation has all the appearances of a rickety house of cards waiting to collapse.
I've been leery of iron ore miners for awhile because of the risks that are building up in the market, and investors may want to consider whether the gains they just made on top of those they've seen before might make this a time to take profits elsewhere.
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