Eleven ways to make money in 2011. #4: open your ohttps://www.guardian.co.uk/money/2011/jan/01/make-money-2011-coal-mineEvy Hambro, one of the world's biggest investors in the
mining industry (he helps manage $40bn (£26bn) in natural resources at Blackrock, including its top-performing Blackrock Gold & General fund) reckons that
coal will be king once again in the commodity markets in 2011.
Last year alone, China added about 51 gigawatts of coal-fired capacity, equal to around half the capacity of all the power stations in the UK. India is also becoming a large net importer of the black stuff, helping to send global coal prices soaring.
Europe's coal stocks are also running lower after the dreadful early winter conditions. Prices for a tonne of coal exported from Australia are now $115, compared to $88 a year ago, while in Europe the price has jumped from $83 to $126, according to coal market expert IHS McCloskey.
The rebound in the resources sector since the onset of the financial crisis has been remarkable. The feeling in 2007/08 was that recession would slow the Chinese juggernaut as demand in the West dried up. Commodity prices would fall and industry giants would see their profits slashed. But as Jo Warner, manager of First State Global Resources says, China just kept on buying, and inventory build-up was nowhere near as bad as forecast. Shares in BHP Billiton have jumped from £18 to £26 over the past three months alone. Rio Tinto has gone from £32 to £45.
Hambro reckons the supply/demand equation will keep commodity prices – and mining company shares – firm for several years to come. The industry underinvested after the financial crash, he says, so new supply won't be coming on to world markets for some time. The big "if" is China. If its industrial expansion slows down, global commodity prices could tank, but few analysts are forecasting such an event. "Last year, China bought 70% of the world's sea-borne iron, and 40% of its copper, nickel and zinc. In future, emerging markets will decide if commodity prices remain strong," Warner says.
Analysis by Rio Tinto reveals that populations that survive on less than $5,000 a head use tiny amounts of resources. But once their average income moves above that level (such as in China), resource consumption takes off, and by the time it reaches $15,000-$20,000 it's on a par with the rich, developed countries. Someone living in Switzerland may have an average income of $100,000, but they don't really consume any more than someone on a fifth of that income.
For a more adventurous bet, try rubber, says Jason Webster, manager of the VAM
Commodities Equity Fund. Ongoing weather problems have been compounding the troubles of an already tight market and prices have recently hit records. High oil prices fuel natural rubber prices as they make synthetic rubber more expensive to produce. Demand should be assured as the car ownership genie has been let out of the bottle in both China and India and their replacement cycle is shorter because of poorer road quality. It all adds up to an interesting sector for 2011."
A lower-risk investment strategy is to buy a global resources fund such as one from Blackrock or First State. But you can also use Exchange Traded Funds to track the performance of an underlying commodity or price index. For coal,
etfsecurities.com has an index of coal-mining companies.
And here are the rest of our 11 money-making tips for 2011:
1 –
make things, 2 –
get a better paid job, 3 –
buy and sell shares, 5 –
invest in a high risk fund, 6 –
rent a room, 7 –
speculate on property, 8 –
trade in your clutter, 9 –
antique furniture, 10 –
clinical trials and 11 –
sperm and opinions.
Here are Patrick Collinson's
best and worst investments of 2010, and Rupert Jones provides tips on
how not to make money.