TER: What sort of opportunities is that creating for you and what companies are you following that are directly positioned to capitalize on China's advances?

CD: China is still on the hunt for acquisitions. It acquired Emerald Energy Plc., which had properties in Colombia, a while ago for about half a billion. They seem to like Latin America for oil and gas lately as they've done quite a few deals there. We are already seeing this wave of M&As (mergers and acquisitions) with overseas oil and gas M&As by Chinese and Indian oil companies bound to reach a record high in 2010. In the first half of this year, overseas M&As reached US$16 billion, surpassing the previous record set in 2009. I'm interested in world-class oil and gas plays in Latin America that have the potential to grow to a sufficient size to attract China and India.

TER: You talked earlier about how many cars are going to be purchased by the Chinese in the coming years. That means that they'll need a lot of steel, and that means a lot of iron. What's happening right now in China's iron sector and how do you see that playing out in terms of investment possibilities?

CD: I love iron ore. I've actually liked it for a long time because of the market dynamics. Asia (excluding Japan) is estimated to spend over $2 trillion in the next five years just building infrastructure. It has been estimated that the world will spend US$41 trillion in infrastructure from 2005 to 2030. You look around for supply and there aren't many new major producing iron ore mines coming on stream.

China, on the other hand, consumes roughly 70% of the world's supply and doesn't control price. It has desperately been trying to control pricing, without much success. It tried to take a 19% stake in Rio Tinto during the crisis, which would have given them a seat at the negotiating table but that fell through. So you've got these three players that control supply and China who just can't get enough iron ore and that's why we've had a 100% increase this year in the benchmark iron ore price—something that we haven't seen before in history.

The other interesting thing is that China needs to blend the Australian iron ore with the Brazilian iron ore due to high impurities like phosphorous and alumina in the Australian product. So I prefer Brazilian iron ore plays at the moment, and the added bonus is they are not subject to the Australian super tax.

TER: Thanks so much Carmel. Very informative, as always.

By arrangement with: www.theenergyreport.com

Post your comment  (0)

Connect:

Post to Twitter

Post to Facebook