METALS RISING AGAIN
STOCKBROKERS ARE GOING bullish on metals, notwithstanding the price and equity wobbles of late February and early March this year. The most important consequence of that for investors is the positive effect stronger metal prices will have on companies such as Anglo American and BHP Billiton, the JSE’s two largest counters.
Says Cadiz fund manager Peter Major: “Platinum group metals definitely need an upgrading and probably the base metals too. I’m also buying back my shorts on Anglo. PGMs are too high to go short on Anglo.” In a 26 March report, Deutsche Bank said it was upgrading some of its 2007 and 2008 metals and minerals price targets. Nickel and uranium prices would be higher than forecast in this year and next, while the copper price would beat its 2007 forecast, as would iron ore in 2008. The bank was also bullish on thermal coal and gold but negative on zinc, aluminium and coking coal. It says the recent correction in metal prices: “... take on the character of recurrent corrections in a continuing bull market rather than harbingers of a major trend reversal”.
It isn’t alone. Numis Securities, a British brokerage, says a combination of factors led it to believe most metals would be stronger in the short to medium term. Forces such as restocking of low inventories by consumers to continuing firm global GDP growth were again driving up metals. In January and February alone copper imports into China grew by more than 70% year-on-year.
And the stainless steel market – which drives ferrochrome, nickel and molybdenum – has also been growing. British trade magazine Metal Bulletin reports that world stainless steel production increased 16,7% last year to 28,4m t.
Numis is more bullish concerning precious metals, as well as copper, aluminium and nickel.
“We continue to believe in the super-cycle – that metals prices will be stronger for longer. However, this means stronger than long-term average prices, not stronger than current spot prices,” said Merrill Lynch in a report dated 14 March.
However, it warned that screen-traded metals such as copper and nickel were too volatile. “We ... would prefer exposure to the longer duration contracted commodities, such as iron ore and coal, as well as uranium, platinum and gold,” it reported.
The evidence is that the investment sector continues to keep metal prices strong. In fact, the scale of investments is a real eye-opener. According to Britain’s Financial Services Authority, the size of the global commodities derivatives market is now estimated to be around R5,4 trillion.