So much for China’s “lackluster” growth…

Last Thursday, Chinese mining officials confirmed what we predicted nearly a month ago: The country’s iron ore imports are going up in 2011. It’s a “mere” 6% increase, but we are talking about China. The boost calls for an additional 40 million tons this year.

It’s largely due to Beijing’s commitment to build 10 million units of affordable housing (up 72% from the previous year) for the world’s largest population.

And it’s putting a big strain on the iron ore market. Take a major iron ore producing-nation like India, for example. It can’t mine enough to satisfy its own steel industry – which grew 13% last year – never mind export it to others. So it’s actually having to import this year.

And of course, Japan has an enormous amount of rebuilding to do after its recent multi-pronged disaster.

[ad#Google Adsense]But it isn’t just iron ore. All commodities are experiencing year-over-year increases from the insatiable demand coming from every corner of the globe…

The Best Way to Play the Commodity SuperCycle

What’s the best way to play this leg of the decades-long commodity supercycle?

In a word: Miners.

The reason is simple: These companies are locked right into long-term, structural upside, based on the forces that will drive mining shares higher.

On one hand, we have supply constraints, high development costs for new mines and a lack of adequate transportation infrastructure in some countries. These are the predictable parts of the supply equation.

Not so predictable is the prospect of higher inflation, political risks (Egypt, Libya and Venezuela, for example, where egomaniacs run the show) and the wrath of Mother Nature, demonstrated so forcefully in Australia and Japan recently.

For example, the catastrophic Australian floods have hampered iron ore production for many weeks. Even now, some of its mines still aren’t back online. And rail transportation from the mines is also affected.

Due to steady demand, there are literally thousands of miners – from microcap prospectors to multi-billion dollar global conglomerates – producing millions of tons of commodities a year. But two stand out from the pack…

Go West to Play Rising Copper Prices

First up… Ivanhoe Mines, Ltd. (NYSE: IVN). In this case, perseverance will pay off in spades.

Together with Rio Tinto (NYSE: RIO) and the local government, it owns the Oyu Tolgoi, a remote, yet massive, Mongolian copper mining project. Once the $6 billion operation gets underway sometime in 2013, Mongolia will be second only to Chile in terms of the world’s largest copper producers.

The timing couldn’t be better for Ivanhoe and Oyu Tolgoi. The gap between supply and demand for copper has continued to widen for the last decade, with only two exceptions: when the dot-com bubble burst and during the more recent financial crisis.

Compounding the problem of increasing physical demand, numerous ETFs are buying up the metal. The combination of the two will likely propel copper to record high prices this year – and Ivanhoe’s share price to new highs.

Vale Cashing in on Surging Iron Ore Prices

The second standout is Brazil’s Vale (NYSE: VALE), a major producer of iron ore, manganese ore, cobalt, aluminum, copper, coal, potash and numerous other metals.

  • With a market cap of over $170 billion – 10 times larger than Ivanhoe – Vale is one of the largest mining companies in the world. Hardly surprising, given that Brazil contains one of the largest iron ore reserves on the planet and Vale produces about 60% of what the country mines.
  • The company forecasts a 20% jump in iron ore prices during the second quarter alone – and even more as the year goes on. And in turn, it should reap the rewards, as it contributes about 15% of global supply.
  • Vale also operates its own logistical systems, including railroads, shipping terminals and three ports, all fully integrated with its mining operations. Vale plans to invest a record $24 billion in capital expenditures this year.

So if you’re looking for great stocks to help you “mine” profits in the months and years ahead, consider picking up a few Ivanhoe and Vale shares.

Good investing,

— David Fessler

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Source:  Investment U