Since Sarah Palin can see Russia from her front porch, perhaps she'd be kind enough to keep an eye on China as well. With all the lingering skepticism surrounding China's stated commitment to stimulating domestic growth, it's time the world realizes that China is serious about doing so.
Following a brief rally, the base metal markets scoffed at China's plan, announced earlier this week, to purchase 1 million tonnes of base metals for about $3 billion. Even after the World Bank lent credence to China's massive stimulus plan in its latest report, and despite the news of oil producer CNOOC's
China's proposed purchase can likely be sourced entirely from within its borders, meaning the announcement may have little immediate impact for miners like BHP Billiton
At 100,000 tons, the proposed purchase of tin represents a full year's production in China. China's tin industry is enormous, featuring several of the world's top 10 tin-producing companies. Where metals analysts perceive a gesture that's unlikely to reach fruition, I see a country moving to maintain productive capacity, to fuel the impending infrastructure build-out of a $586 billion stimulus plan.
While some may interpret this metals purchase as a bailout for a foundering industry, I see a nation prudently amassing resources at unexpectedly low prices in order to enhance the efficiency of its infrastructure expenditures. Where some may perceive a fruitless buildup of metal stockpiles, I see one of the world's most powerful economies acquiring hard assets to help offset its world-leading exposure to the rapidly accelerating debt of the United States. Finally, I believe more such purchases are likely to follow, and that eventually, the impacts upon base metal prices will be longer-lasting.
Further Foolishness on China:
- CNOOC's spending has some identifiable beneficiaries.
- Expect China to stock up on coal as well.
- Differentiate between near-term and long-term.
