Iron Ore, Coal Miners to Increase Next Year, BlackRock Says
By Saijel Kishan
Dec. 13 (Bloomberg) -- Iron ore and coal producers may gain the most among mining stocks next year as rising demand to build infrastructure in China and India counters slowing economic growth in the U.S., according to BlackRock Inc.
``The world is not as synchronized as it used to be,'' Graham Birch, the London-based head of BlackRock's natural resources team that manages $40 billion, said in a telephone interview yesterday. ``You will still get growth from China and India irrespective of what the U.S. economy does.''
Economic expansion in China and India is spurring demand for commodities such as iron ore and coking coal used in steel, as the countries build power plants, buildings and ports. U.S. growth may slow to 1.9 percent in 2008, compared with 10 percent forecast for China, according to the International Monetary Fund.
Contract prices for iron ore have tripled in the past five years on rising demand from China. Prices may jump 50 percent in 2008, Macquarie Group Ltd. said in a Nov. 19 report. Benchmark coal prices rose to a record this year on disruption to supplies from Australia, the world's biggest exporter of the fuel.
Xstrata Plc, the world's largest exporter of coal used by power stations, has gained 44 percent this year in London. Cia. Vale do Rio Doce, the world's biggest iron-ore producer, has almost doubled on the Sao Paulo Stock Exchange.
``It's hard to see what can rain on their parade next year,'' said Birch. ``The only debate in the iron ore market is how high will prices go; nobody is talking negative numbers.''
Birch declined to give a forecast for prices or stocks.
India Economy
China, the world's fastest growing major economy grew at an average rate of 11.5 percent in the first three quarters. India expanded by an average 9.1 percent.
``Domestic consumption in those countries is also accelerating,'' Birch said. ``That's a powerful factor that a lot of people underestimate.''
Among so-called bulk commodity producers, Birch favors producers of potash and phosphates because of rising demand for fertilizers from the agriculture industry. Farmers of arable land want to maximize their efficiency given crop demand globally, he said. ``There is huge profitability in this sector.''
BlackRock's $15 billion World Mining Fund has gained 68 percent this year. Its gold fund has gained 34 percent.
Birch is also bullish on shares of platinum and gold producers as production shortages buoys prices.
South African miners held their first national safety strike this month, curtailing operations that produce three-quarters of the world's platinum and more than a 10th of its gold.
``Mining safety is now top of the political agenda in South Africa,'' where suspension of operations and probes into accidents delays production further, Birch said.
Gold may gain by as much as $100 an ounce next year, buoying shares of miners of the metal, because of production shortages, he said. Bullion traded at $810 today in London and last month rose to its highest since 1980 as the dollar fell to a record low against the euro.
``$800 is not enough to reverse the gradual decline in production,'' Birch said. ``The price needs to be north of $1,000 for that to happen.''
To contact the reporter on this story: Saijel Kishan in London at [email protected]
