China growth to keep commodity boom alive - Red Kite

By Chris Kelly

FORT LAUDERDALE, Fl., May 12 (Reuters) - Long-term growth prospects in China should continue to fuel the country's insatiable demand for raw materials like copper and keep a commodity boom in place for years to come, a hedge fund executive said.

"I think it (China) has emerged and will grow at a steady, or possibly astonishing rate," Barry Feldman, senior vice president with Red Kite Metals Management said in a panel discussion at the American Copper Council's 2008 Copper College last week.

Red Kite operates a family of hedge funds specializing in investment in the metals markets. Founded in 2005, the firm manages the Red Kite Metals fund, which gained 188 percent in 2006, but suffered heavy losses in early 2007 as the price of copper declined. However, Red Kite defied expectations of its collapse and the Red Kite Metals fund rose more than 15 percent in January and 20 percent in February.

During the first quarter of 2008, China's economy expanded by 10.6 percent. Analysts expect that double-digit rate of growth to be a driving force behind the country's future copper consumption.

"Major cities will grow in population tremendously as the government's plan is for super cities, concentrating populations in urban areas to maximize the usage of mass transit and housing, while minimizing the loss of arable land for growing crops in the suburban areas," Red Kite's Feldman said.

Citing data from McKinsey & Co, Feldman estimated 350 million people will be added to China's urban population by the year 2025, more than the population of the United States.

To handle that type of growth, more than 5 billion square meters (54 billion sq. ft.) of paved roads would be needed; 170 mass transit systems constructed; and 40 billion square meters of floor space built in 5 million buildings, of which 50,000 could be skyscrapers the equivalent of up to 10 New Yorks.

"I think it's real. We have never seen volatility like this before and it's very difficult to deal with, but it's a sign of the times," Feldman said, adding that he believed the commodity boom was not just driven by hedge funds.

"I think it's an overall chasing of return either for retirees or for people who invest in mutual funds ... banks. The whole business has changed." (Reporting by Chris Kelly; Editing by Marguerita Choy)