Industrialization Creates Demand for Physical Commodities - dummies

Industrialization Creates Demand for Physical Commodities

By Amine Bouchentouf

During parts of the 19th and 20th centuries, the global powers of the time were embroiled in a strategic geopolitical contest over control of commodities, commonly referred to as “The Great Game.”

The 21st century is experiencing a new great game, in which the stakes are higher and the competition fiercer. The world’s industrialized and rapidly industrializing countries are prowling the investment landscape in search of secure energy and raw material sources.

China, in particular, is becoming one of the most aggressive players on the world stage when it comes to securing energy sources. As natural resources such as oil become scarcer, expect more countries and companies to act more aggressively to secure whatever supplies are left.

Because demand for raw materials is fairly inelastic and supply is limited, there is double upward pressure from both the demand and supply sides of the equation. (That’s yet another reason to be bullish on commodities.)

For now, the pie is large enough that most of the global players are able to participate and get something out of this contest. Keep your eye out for new companies that are making deals overseas to secure raw materials. The companies that are able to do so efficiently and aggressively will generally tend to produce higher revenues and cash flows, key ingredients to the success of any company.

Keep a particularly close eye on companies from emerging China, India, South Korea, and Russia, as well as the traditional players from the United States, Great Britain, Australia, Europe, and Japan, which have the technological and capital resources to close some big deals.