Hiking along back-trails has a calming effect, is good for your cardiovascular system, and is good for your health in general. It’s serene, with few people around.
Hiking along investment back-trails where few Wall Street sales people are around can also have a good effect on you. It can be profitable and very good for your portfolio’s health.
One such isolated back-trail can be found in the world of commodities, which Wall Street usually gives the cold shoulder. This particular commodity does not even have futures traded on it, so Wall Street completely ignores it.
The commodity is iron ore. (Let’s?) take a look at the positive fundamentals for iron ore and the ways that investors can profit from it.
Iron Ore and China
Iron ore is the main raw material used to produce steel and may be more integral to the global economy than any commodity besides oil. After all, nearly 95% of all the metal consumed globally is steel, and iron ore is the key component in steel-making.
Iron ore is therefore particularly critical for developing countries, as the urbanization and industrialization of these societies are built on top of mammoth quantities of steel.
The price of iron ore is also critical to global inflation levels and therefore to the policies of the central banks. Iron ore prices are important because they filter down to into steel costs and, ultimately, into the price of many goods from cars to appliances.
As is true for many commodities, when it comes to the demand for iron ore the 800-pound gorilla in the room is China. Demand for iron ore from China remains strong as its steel-makers in June produced 49.42 million tons of steel – a record monthly high.
In July, China’s main ports received 56.5 million metric tons of iron ore, up 35% from last year. For the first half of 2009, iron ore imports surged 29.3% annually to 297 million metric tons. And the imported iron ore is being used quickly. Estimates suggest stockpiles in China are at normal levels with only about 75 million tons of the imported amount left to be used.
Iron Ore Pricing
The key change that is happening in the iron ore industry is how iron ore is priced.
For more than 40 years, iron ore prices have been settled in secretive and often acrimonious annual negotiations between global steelmakers and global miners.
That tradition is falling apart as major mining companies have decided to sell more of their product on the spot market.
