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Control of non-renewable resources!

Thursday, October 21, 2010

I was first introduced to the concept of non-renewable resources probably during my days as an "A" level student.  It was believed that crude oil would be depleted in 30 years back then.  Well, 20 years have gone by but it seems that we have more proven reserves of crude oil than ever before but it does not change the fact that it is still a non-renewable resource.

OPEC has 12 members and between them, they control 60% of the world's proven crude oil reserves and produce 40% of the world's oil currently. OPEC's importance cannot be underestimated although there are more non-OPEC oil producers since the 1980s.  This is because oil output by non-OPEC oil producers is likely to fall over the next decade.

Although the world is still very much dependent on oil for its energy needs, there are many alternatives to oil.  The increasing awareness of global warming and climate change issues has encouraged efforts to produce energy cleanly and sustainably.  These efforts would only intensify over time.  So, crude oil might be non-renewable but it is replaceable.

Today, in the papers, I learned that there are some other non-renewable resources which are controlled to a large extent by a single Asian country. I first learned of this only a few weeks ago. Some of you might already know what I am talking about: rare earth minerals.  A quick check on Wikipedia reveals that "the majority of rare earth minerals are mined in Asia, with China producing 93 percent of the world's supply, and more than 99 percent of the most valuable supply!"

In the recent case of Japanese authorities arresting a Chinese fisherman in disputed waters, the Chinese stopped the export of such rare earth minerals to Japan. Apparently, these rare earth minerals are so important in the production of many advanced products that the Japanese authorities bowed to pressure and released the fisherman.

The papers today reported that the Chinese seem to have halted the shipments of these rare earth minerals to the United States and Europe as well.  This is in response to the rising trade and currency tensions China has with the West.  How long would this embargo last?

It is also reported that the Chinese plan to further reduce their annual export quota for rare earth minerals from next year.  Mining almost all of the world's rare earth minerals, non-renewable resources which seem to have no viable alternatives at the current point in time, makes the Chinese a force as formidable as OPEC and possibly more.


Anonymous said...

Rare earth, oil and water - without this the world would come to a standstill.

There is no alternative to water either and the water industry stocks may be a good idea. However from the reports, I don't get a "jump in NOW" feeling about the companies.

Again, I shouldn't look at things with emotions..



AK71 said...

Hi SnOOpy88,

The difference with water is that it is renewable. Does NEWater ring a bell. Haha ;p

You are right about how we need water and there is no replacement for it. Latching onto this idea, I was heavily invested in Epure (which offered better value than Hyflux, imo) at about 20+c and Hyflux Water Trust (for its stable high yield) at about 30+c last year. If the Chinese government was going to spend money to help prop up the economy, it would spend on water infrastructure projects, I reasoned.

Epure is the current day Sound Global, if I remember correctly, and Hyflux Water Trust is now to be privatised at 78c. I divested Epure at 50+ to 60+c. Too early, on hindsight.

The companies in the water industry should be good long term investments but, at the current prices, I am hesitant.

Anonymous said...

Sound Global was a recommended stock by my broker, when I started buying shares earlier this year. However, without any supporting, I took to REITs instead.

If you can spare some insight into this counter, it will be helpful for us too.

I had my fingers burn with a china-based counter before. The share is a total write off. Then recently, i had an "urgent" enquiry from a client of a client, asking lots of question about accessing SGX, stock prices, opening account and all. Surprised to learn that it is a chinese who had some connection and information on hand. He & friends wanted to take advantage of this. Well, I told my client to stay out of this. Insider trading is no joke by any count, even if proven innocent later (as a bystander).

This shakes me with all this guanxi thingy and one can never know whats really going on inside the chinese company. I do know for sure that employment of "flower-pot"/alibaba employees (a.k.a relatives, mistress, wives/kids of those in power) are very common sight. Not forgetting seeing how bank loans for working capital could be diverted to play stock markets too.


AK71 said...

Hi SnOOpy88,

Your fears are reasonable and your observations about Chinese businesses are not baseless. I have been burnt by some S-chips as well. :(

Why then did I invest in E-pure last year? Well, I did some research and this company is huge and it has many years of good track record. I looked at the numbers and they suggest that the company was undervalued compared to Hyflux.

I decided that if the Chinese government were to award projects, Epure would stand a better chance, being Chinese. It was a leap of faith but based on some sound reasoning. If you want to know the truth, I was also crossing my fingers. Haha.. One can never be too sure. ;)

I was also looking at Sinomem at the same time last year. It was only 10c per share! It went up to 60c, if I remember correctly. Sadly, I did not invest in it because it was much smaller than Epure and was only in the pharmaceutical sector.

Well, Epure is no longer in my portfolio and I have not paid it any attention for months. So, I cannot comment on it now.

For me, one thing before I invest in a company is that I must feel comfortable about it. If I don't feel good about it, I don't invest in it. I must be able to sleep peacefully at night. If I lose out on some money making because of this, so be it.

The stock market is always there. There is always another opportunity down the road. :)

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