If you have often read about commodities, you will always hear of experts saying commodities cycle will last another 10-20 years.
Its not difficult to understand why this is so. Commodities, esp industrial metals, are kept under the ground. Once it is dugged out, it will not grow anymore, unlike agricultural commodities. And the rate of exploration is very slow, requires huge amount of capital and no guarantee of success.
Whereas the demand for industrial metal has been increasing at a very fast pace for the past 2-3 years. Huge property development in China and India and infrastructure development in Russia require a lot of industrial metals. And now Vietnam economy is growing.
The rate of exploration is so much slower than the rate of consumption, hence over time upward pressure is created, and prices of indutrial metals soar.
This easy money-making opportunities rise the alertness of the investment community. Banks start to launch commodity funds, pouring billions of dollars into commodities, pushing metals prices up at a much faster pace.
But unless you are super patient investor whereby 10 - 20 years investment period is a norm to you, most of us would prefer to make money faster.
In order to indentify this kind of opportunity, we have to focus our attention to the economy giant, China. Find out which metal has a growing demand from China. Based on the lastest report from Non-Ferrous Metal Trade in China, imports for nickel and lead have been rising based on year-on-year basis. And looking at current inventory level of nickel and lead, both had fallen drastically. But since nickel price has risen more than 200% in 2006, I would think lead is a better bet.
Its not difficult to understand why demand for lead has been growing. Everyone in China now wants to own a car. Automobile sector grows at fast pace. And lead is required for the battery inside the vehicle.
However new supply is growing at minimum rate. Lead is a poisonous metal, many countries discourage exploration of lead. Rising demand over stagnant new supply, price should continue to rise in 2007.
For more information on lead: http://basemetal-trading.blogspot.co...ual-trade.html
Many a times, sitting in my work place dealing room, watching videos of fund managers / investment bankers talking about commodities in Bloomberg, makes me wonder, do they know what they are talking about?
When copper price is trading at around USD7000/mt, one investment banker from a global investment bank commented that copper price will reach USD12000/mt soon. Hey! At that time, there are actually many signals that copper price is going to crash soon, and we have been warning our clients time and again through emails that copper price is falling soon. And guess what, we are right, copper price had fallen 20%. Today copper price is only trading at USD5600/mt.
Metal futures is a leveraged product. Just as leverage may enhance returns, it may also magnify losses.