Playing The 3 C’s Of Chinese Demand

By Aaron Levitt | July 14, 2011 AAA

For many investors and analysts, China continues to be a main draw. The nation's large population, changing dynamics and fast-growing economy are all hallmarks of the emerging market thesis. However, to support its quickly budding economy, China's hunger for commodities and natural resources continues to increase at a rapid pace. So much so, that executives at mega-miner Rio Tinto (NYSE:RIO) expect Chinese demand for several key commodities to almost double within 15 years. Even with commodity prices rising over the last two years and some Chinese demand already factored in, the long-term argument is still there. For investors, there's still time to profit from China's big three.

TUTORIAL: Economic Indicators To Know

Corn, Coal and Copper
Chinese demand for a variety of various natural resources continues to grow, but the trio of corn, copper and coal could be the best ways for investors to profit from its voracious appetite. Each is seeing tremendous demand growth as the nation needs to feed and provide power for its expanding population.

Power outages and black-outs have become commonplace in the nation as it continues to need more energy to support its population. To support its energy habits, China has emerged as the largest consumer of coal. Burning nearly 10 million tons of the fuel source daily, China currently receives 70% of its energy from coal. Coal consumption in the nation is nearly 3 times that of the United States. Despite efforts to add a variety of renewable energy, long-term demand for coal in the nation is strong. Analyst's estimate that China's thermal coal imports will rise to 200 million tons in 2015 from around 90 million tons this year.

China is also the second-largest consumer of corn. Urban incomes have more than tripled over the last decade and the country's newly emerged middle class has acquired a taste for protein. Corn is the main feed for both chickens and pork, both of which have seen their consumption double as well. China is on pace to purchase 5 million metric tons this year, up from about 2 million tons in 2010. The lack of water and arable land will make China a net-importer of the grain for quite awhile.

As both a component of infrastructure and consumer products, copper remains an important commodity in China. China currently accounts for 40% of world copper consumption and demand for the red metal is expected to grow by 7% this year. Analysts also expect the nation to undergo a large-scale restocking during the second-half of this year.

Playing The Three C's
Despite, the recent debates on whether China will face a soft or hard economic landing, it still needs to power and feed its people. For investors, playing the three C's is a great way to continue to stay invested in China. Adding a fund like the Market Vectors Hard Assets Producers ETF (NYSE:HAP) is an easy way to play the overall theme. However, there are plenty of individual ways to hone in on that exposure.

With coal prices and demand rising in China, the Market Vectors Coal ETF (NYSE:KOL) is still the best way to play the sector. The ETF follows 36 different coal companies including heavyweights like Peabody Energy (NYSE:BTU). For a direct Chinese play, Yanzhou Coal Mining (NYSE:YZC) recently boosted its dividend and reported an EPS gain of 22% in Q1.

Tracking a basket of copper miners, the Global X Copper Miners ETF (NASDAQ:COPX) is a great way for investors to play Chinese demand. In addition, until a physically backed copper ETF launches, the iPath DJ-UBS Copper ETN (NYSE:JJC) allows for investors to play the price of the physical metal.

Finally, with corn demand soaring, agricultural processors like Bunge (NYSE:BG) and Archer Daniels Midland Company (NYSE:ADM) will continue to see impressive gains in the region. The Global X Farming ETF (NASDAQ:BARN) offers a great catch-all play on the sector.

The Bottom Line
With its fast growing economy and enormous population, China's appetite for commodities seems never ending. The trio of corn, copper and coal represent a great long-term proposition as the nation pulls out all the stops to feed and power its people. For investors, adding a position in any of the ETFs listed or funds like the Teucrium Corn (NASDAQ:CORN) makes sense. (For additional reading, also check out How To Invest In Commodities.)

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