Countries all over the world have long relied on China’s insatiable appetite for raw materials and other commodities. But China is tightening its lending, which could have an adverse effect on metals and mining exchange traded funds (ETFs).

Among the potential challenges metals and mining ETFs could be facing in the coming months include:

  • China. Investors are primarily concerned about any slowdown in the Chinese economy, which could have a contagion effect in the metals market. China’s imports of refined metals grew a whopping 126% last year, reports BusinessWeek. To some, it’s vitally important that China keep up that pace or even extend it.
  • Energy in South Africa. Eskom has made application for a 35% tariff hike after its 45% application hit a rock late late year, and the lowered price demands come after the unions, the business sector and other players attacked. The South African utility company has been struggling to source funding for its expansion program, with very little coming from the government itself, reports Afrol News.

The industry has some positive things to watch out for in the future, as well:

  • M&A. Canada’s mining patch is undergoing many take-over deals, as steadily rising metal prices may drive busy dealmaking in 2010 after a lull in acquisitions last year. Many of  the miners financial positions are healthier now, as new sources of financing are now opening up. China has opened up its coffers to the larger players in hopes of smaller developers taking the bait, as well, reports Cameron French for Reuters on [How will metals ETFS keep going strong?]
  • Imports and Exports. Chinese data for commodity imports and exports have surpassed all expectations. The Chinese government reported recently that the country’s exports for December jumped 17.7 %, breaking a 13-month losing streak. China’s finance minister also said that the government would probably spend the full amount of planned stimulus in 2010, despite improvements in its economy and efforts to control bank lending, reports AAP on BusinessDay.

For more stories about metals and mining, visit the metals and mining category.

  • SPDR S&P Metals & Mining (NYSEArca: XME)

  • Market Vectors RVE Hard Assets Prod ETF (NYSEArca: HAP)

  • Market Vectors Gold Miners (NYSEArca: GDX)

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.