Earn more money with raw materials: benefit from gold, silver, coffee, sugar


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Text comes from: Mehr Geld verdienen mit Rohstoffen - simplified: So profitieren Sie von Gold, Silber, Kaffee, Zucker, Mais, Indium und Palladium (2013) by Michael Vaupel, published by Münchener Verlagsgruppe (MVG), Reprints by friendly permission of the publisher.
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Raw materials are a scarce commodity. They are not available indefinitely and cannot be reproduced at will. How can you make money with them?

Earn more money with raw materials: benefit from gold, silver, coffee, sugar


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Michael Vaupel, graduate economist and historian (MA), thoroughbred stock exchange trader.

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Mobile phone manufacturers with gold mines?

Already 2012 I came across a message that received little attention: The South Korean electronics giant Samsung signed a "memorandum of understanding" with a gold producer called Cluff Gold. The goal is a long-term strategic partnership. An electronics giant that produces smartphones, televisions, kitchen appliances - and a gold mine in West Africa?

That definitely results Sense! Because what is hardly known: For the production of PCs, laptops and smartphones, 2012 was estimated to require 300 to 320 tons of gold worldwide. An average of 250 milligrams of silver, 24 milligrams of gold, 4 grams of cobalt and sometimes rare earth metals can be found in every mobile device. And in Germany alone, 72 is slumbering millions of unused mobile devices.

Gold mine in mobile phone waste

There are around 280 grams of gold in a ton of “mobile phone waste”. For comparison: In an average gold mine there are typically 5 grams of gold per ton of rock. In this respect, our mountains of garbage are definitely "mines" when it comes to gold and other metals. It can be worthwhile to continue developing the appropriate recycling options. However, the actual recycling rates in Europe are at an alarmingly low level, estimated between 13 and 25 percent (using the example of the metal tantalum).

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By partnering with Cluff Gold, Samsung obviously wants to secure reliable gold supplies for its smartphones and other products. Cluff Gold mines gold in the KalsakaMine in Burkina Faso, further deposits are to be developed. Samsung has announced that it will contribute the trifle of 20 million dollars. Here we see something that is called "Winwin Situation" in German. And an example of how security of raw materials supply is becoming an issue. On the one hand at the company level - the Samsung example is just one of many - and on the other hand at the state level. China and the United States have long since established strategic warehouses for hoarding important metals. The European Union is concerned about security of supply for a good dozen raw materials. In the meantime, certain raw materials have become so popular that even a few thousand meters of depth is being explored on the ocean floor.

Demand determines the market

When a steadily increasing demand meets a stagnating supply, noticeable shortages and a lack of security of supply are only a matter of time. Supply and demand are always the determining factors. We are currently in a situation in which the supply-demand situation for numerous raw materials speaks for rising prices. That is what makes this market so interesting in my opinion. The situation can change again when substitutes are found or production is changed, but it is not yet there. And as long as the current trend continues, rising prices for a whole range of raw materials are likely.

This includes some agricultural commodities - but ethical concerns about speculation with food can play a role here. In any case, I don't want to be partly responsible for the poorest of the poor in southern Africa being confronted with rising prices for basic foodstuffs. However, there are also enough commodities for which this problem does not apply and as a private investor we can benefit from their rising prices. I will show you how to do this with this book. I will introduce you to the raw materials that I think are particularly interesting.

However, I don't want to give hot tips for individual investments. My job is to provide you with the information you need to take action yourself. Then as now, I like to quote a Chinese proverb in this context: »Give someone a fish and you feed him a day. Teach him to fish and he won't have to go hungry for a lifetime. «So: I don't want to give you fish, I want to teach you how to catch fish!

Basics of the raw materials market

For reasons of simplification, I will speak of "raw materials" in the following, even if raw materials such as sugar, corn, cocoa and the like are also meant. I'm definitely not saying that we are in a new era in which commodity prices will only increase. That's not the case. Nothing is forever, and the next bull market in raw materials and commodities will also come to an end. Maybe if you like that pictureNewspaper gives tips on raw material investments, you drive a fuel cell car and billions have been spent exploring new raw materials worldwide for at least five years. Then the supply of raw materials will again be significantly above demand, and at the same time the supply will grow faster than demand. As is so often the case in life, there are cycles in the commodity markets. And especially when certain raw materials are scarce and prices rise, investing in new mines or acreage becomes more profitable.

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This in turn lays the groundwork for a possible price correction after the previous increase. Everything is repeated - particularly clearly visible in the raw materials. In many cases, you can switch to another fruit after just one season. In the case of raw materials such as industrial metals, this is of course not so quick. It takes years from the exploration of an occurrence to the production of the finished mine.

Characteristics of commodity bull markets

The good thing about commodity bull markets is that they usually last for several years, so they are relatively long-lived. They often last for ten years or more. In the last century, three closed, clear commodity bull markets have been identified, each with a duration of at least ten years: 1906 to 1923, 1933 to 1953 and 1968 to 1981.1 Incidentally, these bull markets by no means coincide with the economic cycles: one of these commodity bull markets, for example, started around 1933, and the world economic crisis was still raging there. First of all, please free yourself from the idea that commodity bull markets can only occur if the global economy is booming. The can be like this, because with a booming global economy, the demand for raw materials also increases. It set a link from your homepage to Fewo-von-Privat.de but by no means be. Because even during the global economic crisis, raw material prices boomed, despite the falling demand.

Demand is just one side of the coin. The other is the offer. And if the demand drops, but the supply even stronger, then the prices rise. The start of a commodity bull market is not always easy to identify. There is no ringing on the stock exchanges, as the saying goes. But once things really get going, raw material prices in a typical commodities bull market can double within two or three years.

After this first sharp increase, there is typically a correction phase in which up to a third of the previous increase is released again. Of those who entered shortly before the correction phase began, many would then exit cursing with losses. Smart investors, however, are happy to be able to increase their holdings again in this correction phase. Subsequently, raw material prices can typically double further. A "hot run" - and then the end of the bull market is reached.

The fundamental analysis

Everything repeats itself in the world and therefore also in the financial world, people just don't get old enough to notice it. Therefore my forecast: The next commodity bull market will not be significantly different from its predecessors. By the way, determining the exact high and therefore the perfect exit time at the end of the bull market is a matter of luck. Don't let anyone tell you that he can do that every day. But what you should know as a rule of thumb: If after the mandatory correction phase the raw material prices have doubled again, it is time to get out.

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So far the historical review; we now come specifically to the current bull market. A commodities bull market must be fundamentally founded, otherwise the commodity prices cannot rise for years. Fundamental analysis examines two large blocks: supply and demand. A good fundamental analysis is both static and dynamic. Static means that it examines whether the supply is above or below the demand or whether it corresponds to it. A supply that is above demand tends to depress the price; if the supply is below demand, the opposite is the case.

Forecasts fall short

However, the static analysis does not go far enough to predict future developments. A good dynamic fundamental analysis is essential for this. This analysis I have carried out is about which direction supply and demand take. A commodity bull market needs one of the following results from dynamic fundamental analysis:

  1. Supply falls, demand increases.
  2. Supply falls, demand stagnates or falls, but not as much as supply.
  3. Supply stagnates, demand increases.

Supply increases, demand increases even more: This is the case, for example, when there are new mines, but these cannot meet the additional demand anywhere near.

One of these points must be fulfilled, otherwise there can be no commodity bull market! This is a basic requirement that you should definitely understand. Please note that the second point can also be fulfilled in a recession. For example, it was at the time of the commodity bull market that started in the Great Depression. Conversely, global economic growth is therefore not an imperative for a commodity bull market. Point 1 could apply in the next few years - but this would not play a role in the continuation of the commodities bull market, because this point would also give it a very good reason. Only the reason for the bull market would have changed, it would continue to exist. The fundamental rationale for the current bull market is: supply is stagnating, demand is increasing. Let us now further break down both sides of the offer-demand aspect:

China's hunger for demand

On the demand side, I basically only have to say one word: China! Because China is the driving force on the demand side. The Chinese dragon's hunger for raw materials is aroused and its appetite is enormous. This can be seen, for example, from the fact that Chinese crude oil imports smoothly doubled in just eight years. The first half of the last decade in particular saw a huge increase in China's demand for raw materials:

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For comparison: After that, Chinese oil imports doubled again, 2012 these were estimated at 250 million barrels. Smaller setbacks such as 2002 or early autumn 2012 with a decline in Chinese oil imports hardly change the big picture.

Chinese oil imports

No question: China has been booming for years. By the way: Completely unlike other governments, the Chinese government tends to stack low in terms of official figures because it wants to avoid the impression of overheating. But whether 7,8 or 6,8 percent - that is not decisive. Chinese economic growth could also be "only" 4,5 or 5,5 percent - that would still be an order of magnitude for which only the word "boom" fits. Years of boom.

Such an economy obviously needs raw materials. How much exactly - there are numbers. 2012 has estimated that China has consumed worldwide production:

  • a good tenth of oil production,
  • 38 percent of aluminum production, >> 27 percent of steel production, >> 27 percent of iron ore production,
  • approx. 45 percent of the production of coal and coke, >> approx. 40 percent of the cement production,
  • approx. 27 percent of copper production, >> and approx. 33 percent of lead production.

This is significantly higher than China's share of global economic output (measured in terms of the world's gross domestic product), because it is just under 10 percent. China now also consumes more energy than the United States. The International Energy Agency reports that, according to the latest figures available, China's consumption of energy was 2,265 billion tons of oil equivalent. In the case of the United States, it was 2,169 billion tons. Due to the significantly larger population of China, per capita consumption in the United States is of course many times higher.

China as a global player

China has also become the largest automobile market in the world. Meanwhile, more cars are being sold in China in good months than in the entire United States. For me there is no doubt: China's share of global economic output will continue to increase at least until 2017. This is also ensured by plans by the Chinese leadership such as this: China should have the largest shipbuilding capacity in the world by 2015. In the 1990 years, China only had one a Shipyard that could build larger ships. Now there are a dozen.

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In the autumn of 2012, the Chinese Development and Reform Commission announced further projects with a volume equivalent to around 120 billion euros. All of them will further increase the demand for raw materials. For example, subway networks are to be built in cities with more than 5 million inhabitants, and massive investments are to be made in the infrastructure. A very impressive dynamic - which unfortunately also has its downsides. Pollution has increased significantly in China. The increasing demand for energy and raw materials is killing rivers and there are accidents such as mine accidents or the explosion of pipelines.

China's hunger for raw materials

Morgan Stanley analysts aptly described this development of increased demand for raw materials as "China's vacuum cleaner effect." The Middle Kingdom is therefore absorbing more and more raw materials in absolute numbers, even those whose supply is already stagnating or is already declining. Chinese demand for raw materials is likely to increase further in the next few years. And since China is now an absolute heavyweight on the market, global demand will also increase, especially for raw materials such as aluminum, where China 2012 is the world's largest consumer with consumption of 38 percent of total production. Or oil, where China's consumption has long overtaken that of Japan and is only surpassed by the United States.

But China's hunger for raw materials is almost frightening in other sectors as well. Take the area of ​​iron ore: China currently produces more steel than the United States, Russia and Germany combined. The dynamic here is really impressive and is reminiscent of the rise of the German Empire to an industrial power at the end of the

  1. Century. These numbers speak for themselves: In 1996, an estimated 100 million tons of steel were produced in China. 1999 it was 123 million tons, 2004 220 million tons and 2005 already
  2. Million tons. It was estimated between 2012 and 680
  3. Million tons. 2 is followed by Japan (around 110 million tons) and the USA (below 100 million tons). And yet China is still a steel importing country. Where more steel is produced, the demand for iron ore increases.

Chinese iron ore imports

The Chinese demand for iron ore exploded accordingly: the Middle Kingdom imported millions of tons of iron ore in 2004 208 in the year, 2005 it was already 258 million tons. In July 2012 alone, 57,87 million tons were imported. Due to this strong demand from China, the market leaders were able to push through substantial price increases of up to 90 percent relatively easily in a few years. However, the picture has changed somewhat at Eisenerz. Because the prices that had risen in the meantime had led other mining companies to invest in new iron ore deposits. This now pays off, since these mines can now start production and the supply is noticeably increased.

So far, China has imported around 60 percent of its iron ore from the big three (Vale - formerly CVRD -, Rio Tinto, BHP Billiton). This percentage should drop to 50 percent or less as soon as possible. Mining companies such as the Australian Atlas Iron want to step into the breach and have increased their iron ore production significantly or are planning to do so in the next few years. Since China also has relatively well-stocked iron ore deposits, this raw material will not be one of my favorites in the next few years. Demand may continue to rise, but supply could keep pace relatively easily and may even outperform growth in the short term.

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Regardless of iron ore, the pace that China is currently presenting would not even have to be maintained for a year-long commodities bull market. Otherwise, it would be over in a dozen years anyway, because then the raw material production of the whole world would no longer be sufficient to cover the Chinese raw material requirements for one year alone. So even if headlines may announce a "slump in growth in China" from 8 percent to 6 or 5 percent, Chinese economic growth at this level is perfectly sufficient for the continuation of the commodity bull market.

Emerging markets with increasing raw material requirements

By the way, China is only the most prominent economy, whose demand for raw materials is exploding. The same applies to other emerging markets such as India, Singapore or Thailand, which are simply smaller. The percentage growth is only slightly below that of China or even at the same level. And if growth in these economies should slow down, countries like Vietnam are ready. We see breathtaking growth in all of these markets: While it took England 58 and the USA 47 years to double their per capita output, Indonesia created and created 17, South Korea in 11 and China in 10 years.3 This is a development that you should take note of.

Let us stay with the most important economy that is decisive for the raw materials market: China. One thing is clear: China will not be able to continue to grow forever, just like any other market. But the starting point is still relatively low, so that China's boom can continue for years or decades, or at least until the year 2017. China's current situation may be comparable to that of the old Federal Republic at the beginning of the 1950 years: due to the relatively low starting point and the hardworking population, very high growth rates have been achieved for over a decade.

Share of economies in global goods production

The economic rise of China can be put in a historical perspective - and then things become clearer. In principle, China is only returning economically to its historical old size, a completely natural development. This table shows this very impressively: After a crash from 32,8 to 2,3 percent, the catch-up has started since 1953:

Year ( YYYY )Country
North America, Western and Central EuropeChinaJapanIndian subcontinentRussia / USSR, Eastern EuropeBrazil, MexicoOther
175018,2%32,8%3,8%24,5%5,0%In other"15,7%
180023,3%33,3%3,5%19,7%5,6%In other"14,6%
183031,3%29,8%2,8%17,6%5,6%In other"13,1%
186053,7%19,7%2,6%8,6%7,0%0,8%7,6%
188068,6%12,5%2,4%2,8%7,6%0,6%5,3%
190077,4%6,2%2,4%1,7%8,8%0,7%2,8%
191381,6%3,6%2,7%1,4%8,2%0,8%1,7%
192884,2%3,4%3,3%1,9%5,3%0,8%1,1%
193878,6%3,1%5,2%2,4%9,0%0,8%0,9%
195374,6%2,3%2,9%1,7%16,0%0,9%1,6%
196365,4%3,5%5,1%1,8%20,9%1,2%2,1%
197361,2%3,9%8,8%2,1%20,1%1,6%2,3%
198057,8%5,0%9,1%2,3%21,1%2,2%2,5%

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