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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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Southeast Asia Becoming China's Trading Partner of Choice

Some good research from China Knowledge this week. About how southeast Asia is becoming China's trading partner of choice.

China's trade with the Association of Southeast Asian Nations has grown from just $8 billion in 1991 to $2.1 trillion in 2009.

The ASEAN block is now China's fourth largest trading partner after powerhouses America, the E.U. and Japan. ASEAN trade accounts for 10% of China's total import and export value.

Here's the really staggering figure. Monthly growth in foreign trade between China and the ASEAN countries is running over 60%. Compare that with the other world blocks, where China's trade is growing by a much lower 20%.

Bottom line: China is out to do business with Asia. The region is close at hand, easier to operate in, and within the Chinese sphere of political influence.

This has important implications for natural resources. Namely that assets in the ASEAN block are becoming valuable more quickly than in other parts of the world.

Look at coking coal. Coal industry monitor Coal & Energy reported recently that Australian coking coal has come to command a towering premium over coals in other parts of the world.

Aussie metallurgical coal is selling for $200 to $250 per tonne. At the same time, similar coal in America is going for $80 to $85 per tonne. The main reason for the discrepancy? Strong buying of Australian coal by Asian steel mills. ASEAN (or at least near-ASEAN) coal is king.

(Interestingly, the big price gap in met coal seems to be opening some opportunities for American producers. U.S.-based Patriot Coal said yesterday it has reached a deal to sell coking coal to Asia. The logic being that even after paying costs to rail and ship coal from America to Asia, American coal is still landing in China, Korea and Japan for cheaper than Australian coal.)

This ASEAN-centric focus is showing up across the commodities space. A prime example being last week's announcement that Shell and PetroChina are bidding $3.3 billion for Australia's Arrow Energy.

Arrow's main assets are gas fields in Queensland. The company also has projects in India, China, Indonesia and Vietnam.

The buyout offer is a big endorsement by two of the world's largest oil companies. These majors see Arrow's assets as being strategic. Not so much because of their reserves or geologic characteristics (although the fields are decent enough), but because of their strategic location. Smack dab in the ASEAN corridor where countries like China are on the hunt. (Not to mention Korea, Japan and increasingly India.)

Analysts and companies in the resource business spend a lot of time looking for mines and oil fields with world-class geology. Going forward we may also be looking for projects with world-class zip codes.

By. Dave Forest of Notela Resources


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