The Reasons For Investing On Mining
The Importance of Natural Resources
With the emerging-market phenomenon all across Asia, Latin America, and Russia and many other Eastern European countries showing no signs of ever disappearing, a big part of it is their continued demand for natural resources so to feed their hungry economies.
Someone may have said that the current commodity boom will be roaring further in time, as long as this historic, second wave of industrial revolution now taking place in all the emerging markets stays in its course.
As countries like Brazil, Russia, Indian, China, etc. keep on building more cars, buildings and bridges, airplanes, industrial equipments, and various household products, among many others, there will be persistent need for steel, aluminum, copper, zinc, lead, tin, and nickel, to say the very obvious.
Mining as a Stable Industry
Investing in mining stocks is to own or trade a very stable business for the most part. Prices of natural resources do go up and down, but also because of its cyclical nature, companies in the mining business can always make the next strike.
By comparison, investors of consumer-product companies, cyclical or non, and even some industrial companies, have seen over the years fierce competition from low-cost providers in the developing world and technological advances that are making some of what they do obsolete. Some of their businesses are gone and no coming back. But mining, over the centuries, has been always about discovering a ore hole and make it into a mine.
It's world wide operations; already capital intensive, there is nothing like choosing a low-cost location, as mining companies must go wherever resources are potentially probable. And any new technologies are always used to a companys advantage in exploration and production, considering that there are probably no two mines made the same to be the replacement for one another.
The Future of Futures Market for Metals and Others
Most of metals and other natural resources and their products are not traded on open exchanges, but rather individually and privately negotiated between parties. Precious metals of gold, silver, and platinum do have an futures market, but among industrial metals, only copper and aluminum do. One of the most widely used industrial metal, steel, as well as its product-making ingredient, iron ore, do not have futures contacts yet.
But the London Metal Exchange is in discussion with the steel industry to design and develop steel futures contracts for steel producers and users. And elsewhere, other exchanges in Asia, Europe, and North America are studying contracts for iron ore on behalf of miners and steelmakers.
Price transparency and the ability to manage price risk are vital to predicting cash flow and running the entire business more efficiently for mining companies and thats what a futures market can provide for miners. Good for mining companies, good for mining stocks.
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by: Hongxing Mining Machinery
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