China’s GDP soared 11.9% in the first quarter of 2010. And that growth is likely to continue to have a significant impact on certain commodities that China must import.

How does China’s growth affect natural resources?

China imports a significant share of the world’s commodities. China ranks third in the world in thermal coal reserves. However, in recent years there have been a number of safety issues and growing concerns about pollution that have lead to significant mine shutdowns. As a result, two years ago China started to import thermal coal. This additional demand has helped drive up the price of seaborne thermal coal.

Over the past five years, China has built up a huge steel industry, which now represents more than 50% of worldwide steel consumption and production.

In order to support its demand for steel production and consumption, China has had to become a net importer of metallurgical coal and now receives 17% of the world’s seaborne metallurgical coal market. China also has a 60% share of global seaborne iron ore. Both are key raw material inputs used in the processing of steel.

The steel industry is critical to China’s growth and is one of the primary materials used in infrastructure, railroads, commercial buildings, and automobile manufacturing. China has unveiled plans to build 16,000 kilometers of high speed railway and 93 new airports over the next 5 years. It will need a lot more copper, steel, and aluminum to do this, which is a very supportive trend that I believe may last for a number of years.

How is the fund positioned for these trends?

We have focused a large part of our investment strategy on companies that produce the commodities that China must import.

For example, we own some of the leading producers of iron ore and seaborne met coal.