Commodity HQ: A Deeper Look At China's Commodity Industry

Although the geographical size of China is perhaps not that difficult for North Americans to appreciate, their population is another matter. As China has become the second-largest economy in the world, it is without question transformed into an enormous force in the world’s commodity markets; so much so, in fact, that the recent commodity supercycle is now generally seen as a byproduct of China’s emergence.

Please read more here:
http://commodityhq.com/2012/a-deeper-look-at-chinas-commodity-industry/

FinancialEdge: How Will China's Currency Moves Affect The U.S.?

Much of the financial media may still be focused on the accelerating downward spiral of Greece or the anti-Wall Street protests in New York City, but China took a page from Glenn Close's book Wednesday and reminded the markets that it will not be ignored. The real question, though, is whether China's currency combat techniques and prickly sense of sovereignty represent a clear and present danger to U.S. businesses, consumers and investors.

What Happened 

The exchange rate between the U.S. dollar and the Chinese yuan has been a matter of contention between the two governments for quite some time. Put simply, the U.S. accuses China of manipulating the currency exchange rate. Strictly speaking, that is exactly right as it must be for unilaterally fixed exchange rates. In practice, the USD/CNY currency rate trades at a rate higher where it would be in a free-floating market, making China's exports cheaper than they would otherwise be and making imports into China correspondingly more expensive.

Read the full column here:
http://financialedge.investopedia.com/financial-edge/1011/How-Will-Chinas-Currency-Moves-Affect-The-U.S.aspx#axzz1aPf3YKKm

Investopedia: Alcoa: It's All About China Now

In a market that still seems obsessed with finding "China plays", Alcoa (NYSE:AA) might not be the first name that comes to mind. The reality, though, is that China largely calls the tune these days and this giant aluminum company has little choice but to dance to it as best it can.

The Quarter That Was
Alcoa had a respectable fourth-quarter performance. Sales growth was not exactly robust, as the company produced sequential growth of 7% and annual growth of 4%, but it was good enough to more or less meet the average estimate. Within the numbers there was a relatively normal level of choppiness - Engineered Solutions revenue rose by 11%, while Alumina and Flat-Rolled were laggards with flat revenue and 1% growth, respectively.

To a certain extent, that sales profile worked in the company's favor. Although it is certainly the case that sales performance (both absolute and relative) impacts margins, the company saw the best top-line growth in its highest-margin segments. That helped fuel overall after-tax operating income growth of 14% on a sequential basis and 65% on a year-over-year basis, with Primary Metals leading on both an absolute and relative basis. (For more, see Zooming In On Operating Income.)

Trying to put that into a little more context, the profitability of Alcoa is still a good news / bad news proposition. Looking back through Alcoa's history and trying to craft a "normalized" run-rate, it looks like Alcoa is about 10% below normal in terms of flat-rolled production and maybe 20% below normal in engineered products. Here is why that really matters - the incremental costs involved in those two production profiles are quite small and Alcoa could probably double its profitability in each segment at a "normal" run rate. In other words, there is major positive profit leverage if Alcoa can get back to normal (without a major collapse in prices). (For more, see Alcoa Predicts Aluminum Boom.)

Read the full column at:
http://stocks.investopedia.com/stock-analysis/2011/Alcoa-Its-All-About-China-Now-AA-ACH-VALE-FCX-BHP0112.aspx

China's Potash Hypocrisy

If nothing else, China has chutzpah. China's government put out a statement early on Wednesday indicating that it was paying "close attention" to the possibility that BHP Billiton (NYSE:BHP) would succeed in its bid to acquire Canadian fertilizer giant Potash (NYSE:POT). In mentioning that a so-called BHP potash monopoly would "harm global interests" and that prices are already "unbearable" for Chinese farmers, it would seem that this is a not-so-subtle shot across the bow for not only BHP, but perhaps Canada as well. 

Given that BHP Billiton has a significant stake in Chinese potash company China Sinofert, China actually does have some influence in this process and could certainly apply pressure to BHP through that investment. Moreover, there is still the possibility that a Chinese investment fund or company could make a competing bid for Potash - even as large Chinese companies seem reluctant to commit to much interest in such a move.

Please click below to continue to the full article:
http://stocks.investopedia.com/stock-analysis/2010/Chinas-Potash-Hypocrisy-BHP-POT-SNP-PTR-ACH-BYDDY-LYSDY0916.aspx

Is Cheap Chinese Labor Over?

Bookshelves groan under the weight of materials written about how China has changed the global economy. Skeptics blame China for a "hollowing out" of American industry that has seen companies choose to relocate manufacturing China to take advantage of cheaper labor. Others point to the fact that lower labor costs in China have allowed Americans to prosper from cheaper Chinese imports and essentially live better by getting more for their money. 

Regardless of your view of China's role in our economy, the reality is that the situation is always changing. With wages and standards on the rise in China, can American companies still exploit the leverage present in lower wage costs? (For more, see 


You can read the full column here: 
http://stocks.investopedia.com/stock-analysis/2010/Is-Cheap-Chinese-Labor-Over-AAPL-DELL-WMT-ABB-SIE-CAT-PG0625.aspx

Green China

Whenever you read about environmental topics in China, the news is almost always bad. Whether it is problems with air quality in Beijing or water quality in the provinces, there is no shortage of bleak reports about the degradation of nature within China's borders. 

This may not be the full picture, though. True, China has a lot of polluting industries and generates a considerable amount of electricity from older coal-burning plants. The country also has the challenge of figuring out how to provide power, heat, and transportation to a huge population with increasing needs. But China also has considerable financial resources and a political structure that can more easily mandate and advance specific technologies.

With that in mind, it may not be too long before a green China is possible.


For the complete article, please go to: 
http://stocks.investopedia.com/stock-analysis/2010/Green-China-STP-YGE-JASO-GE-CCJ-BTU-ABB0610.aspx

As China Goes, So Goes The World?

I really like writing columns like this one ... where I get to poke and prod at the so-called "conventional wisdom".  It's always interesting to see what turns up when you challenge some basic assumptions.
 
Conventional wisdom is that China now calls the tune. You cannot read a commodity industry report without the assumption that China is the prime mover, and plenty of U.S. commentators have warned of the potential dire effects of a Chinese property bubble on U.S. equity markets.

But is this really true? Let's investigate. 

Calling the Tune on Commodities?On first examination, it would seem that the commodity folks have a point. After all, China is the incremental demand variable for a huge number of commodities. If you compare the iShares China 25 Index ETF (NYSE:FXI) to the iPath Commodity Index (NYSE:DJP), you see a pretty close correlation between the performance of the Chinese stock market and the performance of a basket of commodities. (For more, see Investing In China)

The full column can be read at: http://stocks.investopedia.com/stock-analysis/2010/As-China-Goes-So-Goes-The-World-FXI-VALE-BHP-INTC-WFMI-PFE0601.aspx.