POINT ROBERTS, December 8, 2011 - www.InvestorIdeas.com, a global investor research portal for independent investors, publishes the following CFA commentary on magnesium producer China Direct Industries Inc, (NASDAQ:CDII) and the key markets that drive the demand for magnesium. The report, Magnesium Demand- Indicators and Outlook, was issued by Patrick J. Murphy, Murphy Analytics LLC, a provider of sponsored research coverage on small cap stocks.
Headquartered in Deerfield Beach, Florida, China Direct Industries, Inc. (NASDAQ:CDII), sources, produces and distributes industrial products in China as well as the Americas. The Company operates in two business segments - the magnesium / basic materials segment and a consulting segment that provides a suite of services to companies operating primarily in China. These services include financing structures and arrangements, mergers, acquisitions and other business transactions, identifying potential areas of growth, translation services, managing and coordinating all necessary government approvals and licenses in the PRC, as well as marketing services, investor relations services, and coordination of the preparation of required SEC filings.
CDII's magnesium / basic materials segment, with annual production capacity of 50,000 metric tons of pure magnesium ingots and 10,000 metric tons of magnesium powder, makes China Direct Industries Inc. one of the largest magnesium producers in the world. At nearly 80% of Q3 2011 revenue, the magnesium / basic materials segment is a critical driver of CDII's success, with magnesium representing approximately 44% of total revenue and basic materials representing approximately 35% of total Q3 11 revenue.
While market fluctuations and global economic and fiscal challenges will always result in some degree of uncertainty in the short term, the outlook for the magnesium demand seems to be highly positive in the longer term as a result of growth that appears likely across the industries that utilize magnesium as a basic input. With a commanding share of market production, China Direct Industries may be of interest to those interested in investing in the long term prospects for magnesium.
Following is a brief introduction to magnesium properties and uses, as well as a discussion of expected demand in the key markets that drive the demand for magnesium specifically and also have relevance for considering the potential future growth for basic materials in general.
Background - Magnesium Properties, Uses, Market
- Physical Properties[i]: Magnesium is the lightest and strongest of the structural metals - it is 33% lighter than aluminum, 60% lighter than titanium, 75% lighter than steel.
- Uses[ii]: Most pure metals, including magnesium, are too soft for structural use. However strength properties comparable to those of many aluminum alloys are obtained by alloying magnesium with other metals, and, in some cases, by heat treating or working. Magnesium is also used in desulfurization with other metals, specifically steel. According to estimates from the International Magnesium Association, the primary uses are:
- Alloying with aluminum - 40 - 45 percent
- As a structural metal - magnesium alloys - 33 - 35 percent
- Iron and steel processing - desulfurization - 13 percent
- Electrochemical and other
- The Market: China produces approximately 80% of the global magnesium market, which grew over 24% to 809,000 tons in 2010[iii].
- PRC Mandates Strict New Conditions for Existing and New Refineries: China Magnesium Corporation, which has all approvals and permits in place to expand annual production to 105,000 tons, making the Company one of the largest producers of magnesium in the world, expects[iv] that the government's setting of minimum production thresholds will result in a reduced supply of magnesium and provide an advantage to those producers with production capacity and regulator approvals already in place.
U.S. Light Vehicle Sales: Reported 12/2/11 by WardsAuto.com[v], sales of U.S. light-vehicles in November improved month over month for the 3rd time in 2011, and the 11.3 units sold year to date through November 2011 represents an increase of 10.1% over 2010.
Global Vehicle Sales: Autofacts[vi], which is PwC's automotive forecasting service, published a report in August of 2011 estimating that global auto sales for 2011 would grow 6% over 2010 to 75.9 million units and then increase 10% to 83.5 million units in 2012. Not surprisingly, the report observes that China and India are significant drivers of the anticipated growth.
Aluminum and Magnesium Alloy Market Outlook: In the Company's November 2011 Investor Day presentation[vii], Alcoa (NYSE: AA) forecast an 8.7% compound annual growth rate in aluminum demand in China for 2010 to 2020, with 4.5% expected for the rest of the world and an overall growth rate of 6.5% annually through 2020. Alcoa also forecast that China is likely to become a net importer of aluminum and that demand may outpace production needs in the emerging markets. As an indication of the magnitude of the consumption gap that still remains between the two countries as well as one indicator the magnesium alloy market, Alcoa estimates[viii] that aluminum can consumption is 12 per capita in China vs. 313 in the U.S.
Magnesium in Electronics: As noted in the Company's 2011 Investor Day presentation[ix], Alcoa expects 166% growth by 2014 in revenue from aluminum used in consumer electronics as the market grows 46% from 245 kilometric tons (kMT) in 2011 to 358 kMT on 2014.
Iron and Steel Markets: At the Company's September 2011 Investor Day[x] conference, Arcelor Mittal (NYSE: MT) forecast that the company would increase iron ore production over 70% by 2015 as global iron ore demand grows over 50% from 1,800 million tons in 2010 to 2,800 mn tons in 2016. Although growth is expected to be driven by the developing world, the Company notes that it does expect growth in steel consumption to continue in the developed world as well.
Patrick Murphy Bio:
Patrick J. Murphy is the owner of Murphy Analytics LLC, a provider of sponsored research coverage on smallcap stocks. Mr. Murphy has nearly 20 years of capital markets experience providing institutional investment and transaction analysis across a range of asset classes including microcap equities, commercial real estate debt and equity, municipal derivatives and public finance, venture capital, fixed income, CMBS and mortgage REIT's. In addition to his work with Murphy Analytics, Mr. Murphy also serves as a consultant to a municipal derivatives advisory firm. Mr. Murphy is an alumnus of the University of Notre Dame (1991), with an undergraduate degree in Economics, and earned a Masters Degree in Finance from St. Louis University in 1997. Mr. Murphy is a CFA Charterholder and a member of the CFA Society of St. Louis.
Patrick Murphy Disclaimer:
Readers are advised that the above article is solely for information purposes and should not to be construed as an offer to sell or the solicitation of an offer to buy any security. The views expressed herein are based upon the author's analysis of the issuer's public disclosures, and assumes both their accuracy and completeness. The opinions and statements included herein are based on sources (including the companies discussed and public sources) believed to be reliable and in good faith, but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness. The author has not independently verified the information contained herein. This information is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor. You should review a complete information package on all companies, which should include, but not be limited to, the Company's annual report, quarterly reports, press releases and all regulatory filings. The foregoing discussion contains statements which are based on current expectations, estimates and projections, and differences from such expectations, estimates and projections can be expected. The author, Patrick Murphy, was compensated $550 by InvestorIdeas.com for writing this article. Murphy does not own shares of any of the companies mentioned in this article. Mr. Murphy's research firm, Murphy Analytics, may be engaged for the provision of a research report on CDII in the future.
China Direct Industries Inc, Inc. (NASDAQ:CDII), is a U.S. based company that sources, produces and distributes industrial commodities in China and the Americas and provides business and financial consulting services. Headquartered in Deerfield Beach, Florida with corporate offices in Shanghai, China Direct Industries' unique infrastructure provides a platform to expand business opportunities globally while effectively and efficiently accessing the U.S. capital markets.
For more information about China Direct Industries, please visit http://www.cdii.net
Pearl Group Advisors, Inc
China Direct Industries, Inc.
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China Direct Industries, Inc. (NasdaqGM:CDII) is a featured stock on Investorideas.comDisclosure/ disclaimer: Our sites do not make recommendations, but offer information portals to research news, articles, stock lists and recent research. Nothing on our sites should be construed as an offer or solicitation to buy or sell products or securities. All information published is from public filings , news , SEC filings and or company comments and quotes .China Direct Industries, Inc.(NasdaqGM: CDII ) One month online marketing paid for by third party Pearl Group; twelve thousand five hundred, to include CFA Commentary, email distribution with other Investorideas.com partners and network of online media which are also compensated as part of this overall marketing (please read their disclosures)
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