China Closes its Wallet

Look Out Below as China Closes its Wallet

China’s relentless growth hasn’t revived the global economy, but it has helped the shares of many resource companies rebound far more than market averages this year. But the party may be coming to an abrupt end.

China has been on a resource-buying binge, scooping up world supplies of oil, coal, iron ore, aluminum, copper, nickel, tin and zinc. That has driven up the prices of key commodities at a time when the global recession should have been pulling commodity prices straight down.

China’s immense resource appetite has done wonders for shares of resource producers like Freeport McMoRan (FCX) which has seen its share prices jump by more than 100% this year despite America’s economic crisis. Rio Tinto (RTP) is up more than 70% on the strength of Chinese consumption and Chinese interest in buying a larger stake of the company. Other mining giants like BHP Billiton (BHP) and Anglo American plc (AAUK) are up more than 20% despite the recession.

As we warned in the July issue of the China Stock Digest, it may be time for investors to pare any holdings they have in resource companies which interests in iron ore, aluminum, copper, nickel, tin and zinc. A strong warning that China is about to close its wallet now comes from the enterprising Chinese publication called Caijing.

Caijing says a key state planning official has signaled a halt to government buying of copper, aluminum and other high-value metals because prices have risen too high. “We don’t anticipate that the country will continue to build its reserves,” said Yu Dongming, the head of the metallurgical department of the powerful National Development and Reform Commission (NDRC).

That could mean a plunge in commodity prices worldwide and repercussions for shares of resource miners and refiners.

Alarm bells are already ringing in Australia which has been one of the few countries to enjoy an increase in exports due to aggressive buying by China. The Brisbane Times warns that a decline in exports to China would ripple throughout the Australian economy. BHP Billiton is Australia based and Rio Tinto has major operations in Australia.

In another ominous sign, Australian miners and the Chinese steel industry have failed to agree on new contract prices this year. Contracts of this type have never been allowed to lapse in the previous forty years.

Alcoa (AA) and other bauxite miners and refiners may also be on the endangered list as a stockpiling binge by Aluminum Corporation of China appears to have hit its peak.

It all adds up to one more sign that China is in the driver’s seat economically. America may still have the world’s largest economy but China has the cash to call the shots.

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Committed To Your Profits In China,

Jim Trippon

Editor

China Stock Digest

http://www.chinastockdigest.com