Last week we told you about a major story that was set to break in the world’s metals markets.
Not only that, but it could have a big impact on a select few Aussie mining stocks.
As it turns out, what we thought would happen has happened.
And now it’s up to these Aussie stocks – and one stock in particular – to make the most of it.
Here’s the lowdown…
As we revealed last week, Indonesia had threatened to slap a ban on the export of certain minerals. One of the minerals included in the ban is bauxite. Bauxite is the mineral ore for aluminium.
Any such ban would be a big problem for China, which is the world’s largest consumer of bauxite. It relies on Indonesia for around 20% of its bauxite supply.
Well, yesterday Indonesia did what few truly expected it to do – it went through with the mineral export ban. Now China has to find a source for one-fifth of its bauxite demand.
The initial knee-jerk reaction by many folks will be to go on about how this is terrible news for China. They’ll say how the Chinese economy could collapse as prices rise for metals and demand for consumer goods falls.
The alternative is to look at the positives. That’s what we prefer to do.
And when it comes to the positives, well, to state the obvious, there’s a lot to be positive about…especially for Aussie mining firms that could be in a great position to benefit from the Indonesian shutdown.
If you add this shutdown to the expected huge growth in demand for aluminium from carmakers looking to make lighter cars, it should be perfect timing for any company that’s close to production. That includes the tiny Aussie mining stock we keep close tabs on in Australian Small-Cap Investigator.
Of course, it’s not as easy as turning on a machine to begin churning out bauxite and turning it into aluminium. There’s the issue of project finance, offtake agreements, plant construction, and then mining the stuff.
Even so, China understands how much it relies on stable and regular imports from overseas. The actions by Indonesia’s government will likely cause the Chinese government to diversify its import partners.
Australia is already a big exporter of bauxite. Australia also has one of the world’s biggest reserves of bauxite. So for all the strained relations between Australia and China in the past, Aussie mining stocks are still in a strong position to benefit from what’s going on in Indonesia.
But it’s not just about Chinese demand and Indonesian export bans. One of the world’s biggest car producers has just potentially set off a rocket under the aluminium market…
We woke up this morning to see the news on Ford’s [NYSE: F] latest F-150 truck. The F-150 is the top selling vehicle in the US. If you’ve seen any of Ford’s F Series trucks you’ll know they’re big. Think of a Toyota Hilux and then imagine something roughly 20% bigger. That’s how big they are.
But now, thanks to Ford’s planned use of aluminium in its body panels, the 2015 model F-150 is about to shed a whole bunch of weight compared to the current model:
‘The 2015 Ford F-150 pickup truck is on target to shed 700 pounds thanks to aluminium body panels and will get as much as 30 mpg in highway driving, Ford says. It will also get virtually every driver assist Ford offers on passenger cars: blind spot detection, lane departure warning, surround-view cameras, adaptive cruise control, collision warning, LED headlamps, and automated parallel parking.‘
This goes back to what we’ve explained for a while now. You can take almost any company or industry in the economy and you’ll find that it’s just as much a technology business as it is a manufacturer, retailer or other service company.
This move by Ford is important. Ford is still one of the biggest car companies in the world. This could be a bombshell for the car sector as it will no doubt encourage other firms to make lighter and more fuel efficient cars.
Of course, Japanese carmaker Honda [TYO: 7267] is already ahead of the game. It has developed what we call a ‘wonder weld‘ that combines steel and aluminium to produce a compound that’s stronger and lighter than using steel by itself.
This looks set to be a great boon for the resource sector, and flies in the face of those who claim resource stocks will never recover.
Last week we sat down for a strategy meeting with Diggers and Drillers resource analyst Jason Stevenson.
We told Jason to bring his brain and nothing else. If you read the headlines surrounding the resource sector you’d probably think we had a glum, woe-is-me type of meeting.
Nothing could be further from the truth.
Everywhere you look folks are talking down the prospects of the resource sector. They’re talking about China’s supposedly slowing economy. They’re talking about the potential for falling iron ore and gold prices. And they’re talking about the resource sector never recovering after the boom.
And yet within five minutes of sitting down for our strategy meeting, we’d come up with more than a dozen exciting opportunities in the resource market. By the end of our meeting an hour later we had racked up more than two dozen exciting opportunities .
That should be enough to keep Diggers and Drillers readers in investment ideas for the next two years.
So much for the notion that the resource sector is dead. Far from it.
The reality is that the current market action is what you should expect after a boom. Prices fall, and overcapacity and overinvestment need to be purged from the market. You’ve seen that happen. So it should be no surprise. That’s why the Newcrest [ASX: NCM] share price has fallen 78% since the 2011 peak.
It’s why small-cap mining stock Discovery Metals [ASX: DML] is down around 97% from its peak. During a boom, investors get overexcited and make bad investment decisions.
Now is the time for investors to get on the other side. Resource stocks won’t go down forever. In fact, some have already started to bounce. Newcrest has gained 24% since early December.
In short, there are plenty of people around who will tell you that you can’t make money from stocks today, because the market is too risky. We take a different view. We say you can make money from stocks (potentially a lot of money) for the precise reason that it’s a risky market.
When investors are scared they tend to panic and sell. If you’re in the buying mood that gives you a great opportunity to buy select stocks on the cheap.
Cheers,
Kris+