Tis the season to be jolly, and investors with exposure to commodities are singing "Joy to the World" after the latest market update from the Oracle of Milwaukee.
Mining equipment maker Joy Global
Fortunately for Joy Global, the company entered these less robust times with a record backlog that peaked above $3 billion. Working through some of that backlog provided the manufacturer with a bridge over what it perceives as the fiercest waters of this business cycle. The seas remain violent for now, with fourth quarter bookings for new equipment down 74% from prior year levels. In fact, the P&H underground equipment segment reported "no significant original equipment bookings". Demand for aftermarket products continued to absorb some of that slack, resulting in a combined 44% reduction in overall new bookings.
Peering into the company's comprehensive outlook for continued recovery of global commodity demand, it appears that business conditions for Joy Global and competitors like Bucyrus
When E.F. Hutton talks ...
With a consistent knack for painting an insightful portrait of the global demand environment for commodities, Joy Global's management team has become the E.F. Hutton of the commodities space. When Joy Global talks, diligent commodity investors listen.
Savvy Fools are paying close attention to the domestic steel industry while awaiting the first signs of sustainable recovery. Joy Global confirms that improved capacity utilization among domestic steelmakers -- related to the recently completed inventory de-stocking cycle -- has not been followed by any meaningful improvement to underlying demand. This observation mirrors the recent insights provided by Nucor
Luckily for Joy Global, there is a whole emerging world out there beyond the domestic landscape, and the markets for seaborne coking coal and iron ore to supply Asian steelmakers like Posco
Corroborating the very bullish long-term outlook for seaborne thermal coal that Peabody Energy has consistently touted, Joy Global sees supply shortages on the horizon, adding:
"India's coal imports could reach 50 million metric tons in 2009, up 28 percent from 2008, and are expected to increase to above 60 million metric tons in 2010. Coal India expects this trend to continue, and has projected that imports could increase to 200 million metric tons by 2014.
One material that is required in spades for any meaningful infrastructure build-out is copper, and Joy Global expects surging demand to overwhelm global copper supply in the not-too-distant future. The company notes that "the 2010 price forecast for copper has been revised up several times and is now well over $3.00, with the expectation of further supply shortages and price increases in 2011." Shares of miners like Southern Copper
The global view
Given all that has transpired since, those resource shortages (which I reported to Fools before the epic commodity correction began in mid-2008) now feel like a distant memory from a bygone era. In truth, though, I believe that the global bull market for commodities lives on as a long-term cyclical event ... having been only temporarily derailed by the aftershocks of a paralyzing financial crisis.
Although I think that Dubai and Greece may be just the tip of the iceberg in terms of remaining aftershocks that have yet to rumble through the world economy, I maintain that the relative strength of China, India, and key emerging economies will continue to drive intense commodity demand for years to come. Joy Global notes that "mining will run out of excess capacity well before the industrial sector reaches its full capacity". I think that China saw that coming a mile away, which explains why the nation embarked upon a resource blitz during the deep dip in prices.
Now that you know what I think, please take our Motley Poll, and share your thoughts through the comments section below.
The roving researchers at Motley Fool Global Gains recently returned from a passage to India, and the guys have identified a company that is poised to profit from much of the power plant construction and broader infrastructure build-out that is implied by such a sizeable surge in coal demand. Take the worldly newsletter for a test drive and read their report for yourself.
Fool contributor Christopher Barker is the Nat King of Coal and the wild boar of iron ore. He can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of BHP Billiton and Peabody Energy. The Motley Fool's disclosure policy is busy learning Mandarin.