By David Berman
Martin Roberge, portfolio strategist at Dundee Securities, is not as enthusiastic about diversified metals stocks, cutting his recommendation to “market weight.” The reason? China.
While the China factor has been used for years as a bullish reason to own just about everything, this time there are signs that the country’s demand for commodities – especially copper – isn’t as strong as it used to be.
“Just as growth in leading economic indicators is peaking globally, China reported that inflation jumped in February (2.7% year-over-year), fuelling concerns that the globe’s economic engine could hike interest rates and trigger another round of global economic scares,” Mr. Roberge said in a note to clients. “While we think these fears are premature, it does force us to admit that some cracks have started to appear in Chinese fundamentals for commodities.”
Such as: China’s demand for copper peaked in the fourth quarter of 2009, but contrary to previous peaks, this one coincides with full warehouses and rising inventories – as China ramps up its own copper output.
Still, Mr. Roberge doesn’t see a doom-and-gloom scenario here, which is why he hasn’t downgraded the diversified metals group (which includes stocks like Teck Resources Ltd., First Quantum Minerals Ltd. (OTC:FQVLF) and Inmet Mining Corp. (OTC:IEMMF)) even lower.
“Chinese happarent consumption of aluminum and zinc is still robust,” he said. “Also, as we said in previous wires, metal consumption seems to have spread in developed economies with the moderate recovery in ousing, auto and other industrial sectors such as machinery and aircraft.”