China’s voracious appetite for commodities drove the second-biggest monthly haul of crude oil and tripled aluminum imports, but very little steel, aluminum and coal went the other way.

“Industrial production is coming online and demand is rising. But sentiment may be tempered by the view that some of the material is being stockpiled and… consumption hasn’t risen as quickly as imports,” Ben Westmore, commodities economist at National Australia Bank, told Reuters.

Copper imports jumped 6.6% from March to April, to 399,833 tons; iron ore imports soared 9.4% to 57 million tons, and crude oil imports hit 3.93 million barrels per day, a 2% rise, customs data showed.

But China’s exports fell more sharply than most analysts had expected in April. The value of goods and services leaving the country was down 22.6% compared to last year, whereas economists had expected an 18% drop.

The drop in exports is leading some experts to speculate that China’s economy is being sustained solely by the $585 billion stimulus package the government is quickly deploying throughout the country. The stimulus program is heavily laden with infrastructure projects, explaining in part China’s huge demand for raw materials.

But some of that spending is spilling over into sales of construction equipment, much of it imported from the United States. Caterpillar Inc. (NYSE: CAT), the world’s largest maker of bulldozers and excavators, is among several companies already pointing an improvement in sales to China.

“March and April were pretty strong months for sales in China,” Caterpillar Chief Executive Officer James Owens said on an April 21 conference call with analysts.  Owens contends China’s stimulus spending for public works projects is working more quickly than in the U.S.

“When they say ’shovel ready,’ they mean nine weeks, not nine months,” he said.

Still, the drop in exports could put a chill on China’s imports of raw materials and construction products if consumption doesn’t pick up in the West.

“Although the downward trend is in line with our expectations the fall in exports is steeper than we anticipated,” Wang Xiaohui, an analyst at Sinolink Securities in Shaghai told Forbes.“Exports are likely to drop further in the near term as economic indicators in the United States and Europe, such as industrial output and retail sales, are not looking up.”

The U.S. trade gap with China increased to $15.6 billion from $14.2 billion from March to April. The gain in imports from China overshadowed an increase in Chinese demand for American-made goods that pushed U.S. exports to the highest level since October.

But the recent stock market surge and other economic data lead Wang to conclude that the lull in U.S. demand for China’s exports will be short-lived.

“In terms of exports, we’re looking at a better second half than first half, with the U.S economy stabilizing, which will provide support to China,” Wang said.

Source: China Imports Record Amounts of Copper and Iron Ore, but Exports Drop on Slack Global Demand

The dividends of the old spice trade, for example, financed much of the architectural splendor of Venice, Italy. If you stroll the Piazza San Marco, a complex pattern of Istrian stone plays out beneath your feet. Nearby, grand palazzos and public squares show off a dazzling array of tall columns, carved marble, impressive domes and spires.

As William Bernstein tells us in his fascinating book, A Splendid Exchange, Venice’s dazzling look was built up “largely on profits from pepper, cinnamon, nutmeg, mace and clove.” Spices then were what oil is today. At its peak, cinnamon oil traded for its weight in gold. Venetian traders made fortunes. “Profits well in excess of 100% were routine,” Bernstein notes. “A typical Venetian galley carried 100-300 tons between Egypt and Italy and earned vast fortunes for the imaginative and the lucky.”

Even then, a salty sailing man could count the most important sea lanes on one weathered hand. All of trade boiled down to just a handful of key passageways. Amazingly, these same passageways are still vital to world trade.

The most valuable commodity shipped today, by far, is oil. Nearly half of the world’s tonnage deals with shipping petroleum in one form or another. And nearly two-thirds of all petroleum produced winds up in the hulls of the world’s maritime fleets. The biggest consumers of oil happen to be far away from the richest oil regions. The U.S., for example, imports about 70% of its oil – compared with 42% in 1990 and only 24% in 1973. In fact, the U.S., Europe and Japan account for about 75% of global crude oil imports.

As oil demand grows – and, with it, dependency on imported oil – pressure will build on a handful of key sea lanes. Two of them loom much larger than the rest, accounting for more than 60% of the total oil shipped. These sea lanes are like the world’s throat, funneling the oil that slakes the world’s thirst. If one of these lanes constricts or closes, the world chokes, so to speak. So it’s likely that future oil shocks could stem from problems in these key transit lanes, or “choke points.”

(The nearby graphic appears in Bernstein’s book. It originally appeared in an excellent paper by Jean-Paul Rodrigue, titled “Straits, Passages and Chokepoints: A Maritime Geo-Strategy of Petroleum Distribution.”)

Most of these choke points have ancient roots. The Bosporus, for example, is a little neck of a strait connecting the Black Sea with (ultimately) the Mediterranean Sea. It has been a prized maritime passage for nearly 3,000 years. At its narrowest point, it is only about 765 yards across. “It is packed around the clock with an unbroken line of tankers, freighters, long-distance ferries and luxury liners,” Bernstein reports. Lined for 18 miles on both sides with expensive homes, it reached its maximum capacity long ago. Collisions and spills are common. Delays are routine, especially when large oil tankers make their way down the strait, forcing the oncoming lane to close in stretches.

The Strait of Hormuz is the world’s most important choke point because of its access to Middle Eastern oil fields. It is also one of the most vulnerable. It lies within easy striking distance of a number of troubled countries, including Iran. It has been a source of trouble in the past, as Rodrigue reports:

“Security within the strait has often been compromised. Between 1984-1987, there was a ‘Tanker War’ between Iran and Iraq, during which each party, in their own belligerence (Iran-Iraq War of 1980-1988), began firing on tankers, even neutrals, bound for their respective ports. Shipping in the Persian Gulf dropped 25%, forcing the intervention of the United States to help secure oil shipping lanes.”

There are few alternatives for Gulf oil if it can’t go through the Strait of Hormuz. The strait’s importance in global oil trade seems hard to overstate.

The Strait of Malacca is critical, too, because the eastbound passageway services Japan and China. Interestingly, the U.S. 7th Fleet patrols the Strait of Malacca. As China’s dependency on imported oil grows, I wonder how it will feel about the U.S. fleet’s presence in such a critical waterway.

These choke points may also mean that shipping oil may yet enjoy a long stretch of prosperity. The strained capacity of these choke points may limit the ability of the industry to add much supply. That means the existing shipping infrastructure – pipelines, terminals, tankers and storage facilities – may command better returns than most expect. Some of these assets, such as oil tankers, for which there are a number of publicly traded companies, are easy to invest in.

Venetian traders of yore minted money carrying spices, then the world’s most precious commodities. So too today’s investors may carry away fortunes wading into the business of moving oil. Check in tomorrow as we examine one of the most interesting tanker stocks to buy right now…

Source: Have the Tanker’s Stopped Tanking?

That means Africa gets its proper gigantic sizing. It is truly a massive landmass.

It’s also fitting that it sits close to the center, because Africa is a big part of the future of natural resource exploration and production. In some sense, it’s retaking its historical preeminence. For instance, consider the former rich trading cities in the East.

Zanzibar, Dar es Salaam, Mombasa, Mogadishu, Mumbai, Mangalore… all trading cities along the fabled rim of the Indian Ocean. These east African trading cities thrived between the 12th and 18th centuries, with ships sailing in and out on monsoon winds.

Africa had good harbors and plentiful fish and lots to trade with India and Arabia. Ties between India and Africa, especially, strengthened under the common influence of Islam and the Portuguese. (Portugal colonized both Goa and Africa’s coast.) Africa is also home to a large population of ethnic Indians, which helps bridge trade further. One of Africa’s better known industrialists – Manu Chandaria – was born in Kenya, but his parents are from the Indian state of Gujarat.

These historical ties and those old trade routes are reviving once again. In the spring, Delhi hosted the first Indian-African summit. Trade between India and Africa tops $25 billion per year. Nigeria, for example, accounts for 10% of India’s crude oil imports. But China’s trade with Africa is a lot more – $55 billion annually. The reason for this boom in trade? A hunger for the natural resources of Africa.

Africa increasingly is right in the middle of the global quest for natural resources. It has the highest ratio of light and sweet crude in the world – the best-quality stuff you can find. And most of its oil – some 83% – comes from large fields that produce at least 100 million barrels per day. Meaningful amounts of premium oil in large fields explains why Africa attracts so much investment. Between 2002-2006, the big oil companies tripled their spending in Africa.

———- Advertisement ———-
The Only Investment Legally Obligated to Pay You 181% Gains By June 15, 2009

It’s not a stock, option, gov’t bond, or anything else you’ve likely heard of…

But this unusual investment entitles you, BY LAW, to receive 50% to 400% gains on precise dates in the future.

A recent Dow Jones study said this investment has crushed the S&P 500 by 543% since 2001.

Click here for details.
————————————

The recent discovery of oil sands in the Congo by Eni, a big Italian oil group, lends more credence to the idea of Africa as the future of global oil supply. Eni hasn’t said how much resource its vast acreage might hold. But the Financial Times reports early samples suggest, “The area as a whole could hold more oil than Eni’s entire reserves of 7 billion barrels of oil equivalent.” That would put Eni’s resource on par with the huge Kashagan field in Kazakhstan. Eni potentially doubled its oil reserves with this one African find.

Right now, Africa produces only about 12% of the world’s oil output. By 2012, that could be 30%. No wonder, then, it has become such a competitive battleground for the oil companies. In a recent auction, India’s state oil company bid $321 million for an Angolan oil block. A Chinese oil giant bid $725 million. Guess who won?

It’s not just about oil, either. Africa holds tremendous amounts of natural gas, minerals, and natural resources of all kinds. Much of it is in places where it’s easy to do business. But there is often a fragile social fabric, which seems ever on the brink of a civil war or a coup or worse.

In Niger, for example, you will find some of the world’s largest deposits of uranium. Niger plans to double its output over the next several years.

Companies from all over the world – Australia, Canada, China, India, and France – scramble to lock down claims. But the uranium deposits lie in the ancestral home of the nomadic Tuareg. The Blue Men of the Desert (so-called due to the color of their favored indigo dyes) return to old ceremonial grounds to find red flags marking uranium deposits. The result is predictable – battles between the Niger army and Tuareg fighters, and bloodshed.

Yet the rewards dangling before the world’s eyes are so great. Many companies will walk the edge of that precipice for a shot at glory. A longtime holding in my Capital & Crisis advisory, Canadian Natural Resources has a mix of West African oil properties that could be significant. Another longtime holding, electrical infrastructure specialist ABB Ltd, has a big power project in Namibia and a growing presence in Africa.

Betting on Western companies that have this sort of backdoor exposure to Africa is my preferred modus operandi.

It’s far safer, for one thing. But I wouldn’t mind investing in more of a pure play if I could find a company that offers enough safety and enough upside. In my Mayer’s Special Situations letter, we recently doubled our money in Vaalco Energy, a small West African oil explorer and producer, in about eight months. So there are success stories here.

Ryszard Kapuscinski, the late journalist, once wrote that Africa was too large to describe. Africa was “a veritable ocean, a separate planet, a varied, immensely rich cosmos.” (The Heat of the Serengeti Plain, 1962) “Only with the greatest simplification,” he wrote, “can we say ‘Africa.’ In reality, except as a geographic appellation, Africa does not exist.”

I think the same holds true today. But one generalization is safe to make: Africa is in the thick of the race for more natural resources.

Good investing,

Chris Mayer Editor’s note: Chris Mayer is the editor of Capital & Crisis, an investment advisory we read religiously at DailyWealth. If you’re an investor in agriculture, mining, energy, and infrastructure, Capital & Crisis will become some of your favorite monthly reading. Click here to learn about one of Chris’ top ideas right now.

Source: A Potential Oil Sands Boom You’ve Never Heard Of