What was that about China’s economic collapse?
Oh, that’s right, China’s economy hasn’t collapsed.
That doesn’t mean it won’t.
But it hasn’t happened yet.
So, when will it collapse? Will it ever collapse? It probably will…one day.
But until then, we’ve found two ways to profit if the China boom keeps on booming…
Before we give you some financial advice, we’ve got some advice for Holden.
Go sell cars in China.
What are they doing wasting their time in the Aussie market? Well, we guess that’s what they’re doing. Holden’s parent company General Motors is going to China.
And who can blame them? As Bloomberg News reports:
‘China became the first country in which more than 20 million vehicles were sold in any given year as Toyota Motor Corp. (7293) to General Motors Co. (GM) and Volkswagen AG (VOW) delivered a record number of cars there.
‘Total deliveries rose 14 percent to 21.98 million units last year and may exceed 24 million in 2014…‘
That’s a big number by anyone’s standards – nearly 22 million cars sold in just one year. That’s equal to 1.6% of the population buying a new car. In comparison, last year saw 1.14 million new cars sold in Australia, equal to 5.4% of the population buying a new car.
It’s no wonder the car makers are ditching Australia and heading to a market with real growth. While that may be bad for one part of the Aussie economy, for two other markets the news couldn’t be better.
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The car sales numbers are great. Second to none. But that’s not the only reason the story caught our eye. This next bit of news is just as important:
‘With air quality deteriorating so much that children and the elderly are regularly warned to stay indoors, Beijing is tightening its vehicle quotas and Tianjin is capping the number of licences issued this year.‘
So, what’s so good about that?
Well, it obviously isn’t good news for the folks living in Tianjin. But what can they do? There’s clearly a huge demand for cars and other forms of private transport. If car sales keep rising, won’t that make pollution levels even worse?
Not necessarily.
This is where the story gets exciting. It’s something we’ve followed since the middle of last year.
Many people don’t realise this, but the best way to cut polluting emissions from cars is to reduce a car’s weight. It’s also a way to cut fuel costs. If you drive a small car, odds are it will cost you less in fuel than a big car.
But not everyone wants a small car. For some people, they just aren’t practical. Plus, there’s the status symbol side of it. Many people like big cars. Until recently, that has been a problem in terms of cutting pollution.
Not anymore. An innovation by Japanese carmaker Honda has resulted in a neat way for the company to cut up to 25% of a car’s weight without having a negative impact on the size or structural integrity of the car.
How has it done this? Well, most cars have a steel chassis. The reason for that is, as everyone knows, that steel is super-strong. The problem is it’s also heavy. Honda has the solution. It has developed a process that enables the company to bond heavy steel to lightweight aluminium.
The result is a structure that’s at least as strong as a fully-steel chassis, but only three-quarters of the weight.
It’s an amazing breakthrough, and will likely have a big impact on the car industry. The CEO of Alcoa reckons this innovation, if replicated across the entire car industry, could quadruple the demand for aluminium in the industry. And with China’s cities suffocating under a cloud of smog, anything that can help reduce pollution will be welcome.
That’s why we’ve taken a unique approach to investing in this innovation in the car industry – it doesn’t involve buying a carmaker. But there’s another development that could impact this industry. And it could be a boon for one Aussie company…
The Financial Times reports:
‘…it now looks likely that Indonesia, one of the world’s most important sources of minerals used to produce industrial metals, will implement an export ban on unprocessed mineral ore…
‘The move, expected to be announced on Sunday, will be most keenly felt in China, which relies heavily on Indonesian ore to produce nickel pig iron, a key ingredient in stainless steel. More than a fifth of China’s aluminium is produced from bauxite imports from Indonesia.‘
The last sentence interests us most. Aluminium is a big input into the car industry even without Honda’s steel-aluminium bonding technique.
If Indonesia acts to slap an export ban on bauxite, that will have a big supply impact on industries that use aluminium. That’s where things get interesting. Australia has one of the world’s biggest reserves of bauxite.
Any Indonesian export ban should have a positive impact on Australia’s bauxite producers. And that should be good news for the stock we’ve recommended in Australian Small-Cap Investigator to take advantage of increased demands for bauxite.
The way we look at it is simple. The demand from China for resources still doesn’t show any sign of slowing down. Chinese consumers bought nearly 22 million cars last year, and estimates are this will grow by 10% this year.
If China’s cities are serious about cutting pollution, one of the best ways it can do so is to encourage carmakers to build lighter and more fuel-efficient cars. That would mean more demand for aluminium and bauxite, and a great opportunity for the companies that can meet that demand.
Cheers,
Kris+