Commodity: Chindia Fueling the Iron-Ore Gluttony

China is also fast becoming the world's iron-ore glutton. How so?
China needs iron ore to make steel for its construction industry, now the largest in the world. She needs the iron to help feed the new growth in construction — 20% in 2006, & 25% in 2007. She needs the iron to build residences, highways, railroads, subways and dams.
Just in Q1 2007 alone, China imported 100.2 million tons of iron ore, an increase of 23.4% over the previous year. If this pace continues through year-end, total imports for 2007 will easily exceed 355 million tons.
Looking over to India & into the future, the demand could be even larger. Right now, India's consumption of steel is still less than 90 lbs per person. In China, by contrast, it's over 500 lbs, and in South Korea it's about 2000 lbs, or over 20 times more than India's! If India just closes that gap by a modest margin, it could double or triple its demand for steel, causing equivalent growth in its demand for iron ore!
Many companies & countries are scrambling to secure iron resources! Steelmaking companies are suddenly realizing that their long-term, iron purchasing contracts are not enough. So they're in a panic to secure new supplies. Driven by its huge demands, China and India are leading the pack.
China is locking down iron-rich resources in Australia, where China's Baosteel and Australia's Fortescue Metals Group Ltd (FMG) have signed one of the largest partnership deals in Australian mining history — to supply up to 20 million tons of iron ore per year. China is seeking to do something similar in Canada, Brazil, and wherever iron ore is found.
In Colombia, Brazil's Votorantim recently bought 52% Acerías de Paz del Río, Colombia's second biggest steel maker, for $489 million. This means Votarantim now surpasses the giant Arcelor Mittal, as well as Brazil's own Gerdau and Companhia Siderurgica Nacional.
The biggest plays, however, are Australia (which exports over $8 billion worth each year) and Brazil ($7 billion).

Pay Attention to Two World's Largest Iron Companies: CVRD and BHP Billiton.

They control massive amounts of iron ore reserves and are among the largest suppliers to China and the rest of the world. Brazil's CVRD is the largest mining and metals company in the Americas and the second largest in the world. Recently, it has established a strategic alliance with Nippon Steel to produce iron pellets and iron alloys. The company invests more money every year than any other company in Brazil, and in 2007, it plans investments totalling $6.3 billion, including $2.12 billion related to iron alone.

Meanwhile, on the other side of the southern hemisphere, BHP Billiton is the only non-banking firm among the Australia's five largest. Compared to CVRD, its closeness to China and Asia is a major strategic advantage; the greater volatility of its shares, a minor disadvantage. But overall, the opportunity is similar.

My recommendation: Pay attention to these 2 counters but don't rush out to buy immediately. Wait for a pullback. This commodity party is not done yet.