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Instead, they’re also a commodity trader’s best friend.

FT laid out the case nicely on Thursday for why tea–which is already trading at an all-time high–may indeed have further to go:

“Traders now fear that the poor monsoon in India [one of the world’s top exporters along with Kenya and Sri Lanka] and scanty rains in Kenya’s Rift Valley will cut output in the second half of the year.”

Meanwhile, raw sugar futures, which have surged some 90% this year already, may also have more upside given a global supply deficit (due to drought in India and excess rain in Brazil), growing demand as well as El-Nino related weather effects hitting India, the second largest producer.

In a speech given to mining investors while in Johannesburg earlier this year, Frontier Advisory CEO Dr. Martyn Davies reiterated the case for frontier, and specifically, Africa-centric investment:

“If you believe in the long-term urbanization success story of China and India, you buy Africa, because that’s where the commodities are going to come from,” Davies told the audience.

Endowed with 30% of the world’s minerals, the African continent is experiencing continued attention and capital from Chinese and Indian firms which, according to McKinsey’s sub-Saharan Africa principal Dr. Heinz Pley, will concurrently provide growth to those economies as well as those in Africa itself:

“The Chinese have a long way to go to reach the personal income levels that Europeans and Japanese had. There is a lot of room left for growth in China and there is India in the wings and actually also Africa, in the long-term, will create significant demand for commodities, and no longer merely produce commodities for the rest of the world,” Pley said.

While global mining projects had been hit just as hard as global banks, Pley remarked, the turnaround–predicated presumptively on domestic stimulus and a lending surge–has been even more dramatic.  Yet some observers note that China’s commodity appetite has far exceeded the mere arbitraging of raw material spot and futures prices and instead gone into the risky realm of inflated, speculative inventory building.  Back in June, Macro Man, a London-based manager, penned an interesting post on what he called “The China Syndrome” that infers whatever Chinese buyers are now giving to the commodity cycle, they will ultimately take away in terms of rate of change:

“While overall [Chinese] imports have barely started to recover in value terms, many commodity imports have absolutely skyrocketed in volume terms. And at the end of the day, the inputs to China’s industrial and investment complex are based on volume, not value,” he wrote.

For reference, China’s coal and iron ore imports by volume through 2008 are shown below:

china coal importschina iron ore imports

JGW

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