Finweek English Edition - - Companies & markets - DAVID MCKAY

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.

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