Mining ETFs Facing Global Shifts

Growing nations are starving for raw materials. Their newly-minted middle classes are ready to spend, they’re buying cars and they’re moving to the cities. Mining exchange traded funds are in a position to reap the rewards of this growth.

New buildings demand copper for wiring and pipes. New cars call for platinum and palladium for catalytic converters. Silver is also a major component in manufacturing.

This anticipated demand has the mining industry looking to the future with optimism. The outlook for the sector varies by region:

• Mergers and acquisitions are picking up, although it’s uneven. In Australia, M&A activity has stayed fairly level, even during the financial crisis. The picture has changed some, though: just last year, many companies were delaying production or shutting down entirely. China has conducted about $16 billion worth of transactions around the world, mostly snapping up undervalued companies, according to Financier Worldwide. One area that China is heavily pursuing is Australian mines.

iShares MSCI Australia (NYSEArca: EWA)

• In Chile, a mining tax is on the table. The bill, currently in Congress, could raise $1 billion over three years to help fund reconstruction. It would raise the tax from 4% of copper miners’ profits to 9%; new projects would be charged between 5% and 9%, says Jude Webber forThe Financial Times.

iShares MSCI Chile (NYSEArca: ECH)
Global X Copper Miners (NYSEArca: COPX)
First Trust ISE Global Copper (NASDAQ: CU)

• In South Africa, it’s strike season and it’s threatening to shut down some major mining operations, reports PoliticsWeb. South Africa’s mining sector is already troubled by frequent power outages; further shutdowns could only add to the woes. Such shutdowns have a tendency to boost prices of various metals if production isn’t able to keep step with demand. In the end, this may ultimately boost the bottom lines of miners and translate into gains in ETFs that own them.

Market Vectors Junior Gold Miners (NYSEArca: GDXJ)
Market Vectors Gold Miners (NYSEArca: GDX)
Global X Silver Miners (NYSEArca: SIL)

Aaron Hurst contributed to this article.