How to Invest in China's Soft Landinghttp://www.fool.com/investing/general/2012/10/18/how-to-invest-in-chinas-soft-landing.aspx Christopher Barker
October 18, 2012
They were some crazy days while they lasted, but they may never return again in our lifetimes.
I'm referring to the period of acute supply shortages and soaring record prices that characterized commodity markets back when it seemed that China's appetite for raw materials was utterly insatiable. Prior to China's recent deceleration, while its GDP was still expanding at a double-digit clip, the global mining industry leapt into emergency expansion mode to meet skyrocketing demand.
Giants BHP Billiton (NYSE: BHP ) and Rio Tinto (NYSE: RIO ) helped to fuel a dramatic mining boom in Australia, dominated by ambitious iron ore projects in Western Australia and coal growth in places like Queensland and New South Wales. Brazil's Vale (NYSE: VALE ) altered the course and structure of the dry-bulk shipping industry with its orders for a fleet of the largest bulk carriers in the world (known as Valemax carriers). Even Appalachian coal miners in the eastern U.S. began to ship their coals into the bustling Pacific seaborne trade.
Everything in moderation
With specific regard to bellwether demand for steel, Kloppers believes that China's steel boom has peaked, and that "steel intensity per unit of GDP will continue to moderate and growth rates for iron ore and coal are likely to decrease." Naturally, this moderated outlook requires that the major miners scale back some of their previously envisioned growth initiatives, and we've seen that process in play as BHP recently put the brakes on a $6 billion pair of met-coal projects in Queensland.
Both BHP and Rio Tinto are still committing some rather massive capital expenditures to current growth projects, but both companies have indicated a de facto moratorium on any further project approvals for the time being. Rio Tinto expects its $16 billion budget for capital expenditures in 2012 -- which includes heavy investment in expanding iron ore production from its Pilbara mines in Western Australia -- will itself represent a multi-year peak.
A soft landing for the global commodity supercycle
Further, I wish for Fools to remain absolutely clear in their understanding that these newly moderated outlooks for global commodity demand still leave loads of opportunity on the table for investors. A stabilized growth rate for China in the upper-single-digits would equate to a soft landing for this very key player in the global economy, resulting in what we might Foolishly refer to as a soft landing as well for the long-term bull market in commodities that Peabody Energy (NYSE: BTU ) and others have termed a "supercycle."
In the near-term, I expect a combination of widespread productio