Market Nuggets: TDS: Low Prices Of Industrial Metals Represent 'Buying Opportunity'

Friday July 26, 2013 8:03 AM

TD Securities describes the generally soft tone in industrial base metals as a "buying opportunity," adding that "it's always darkest before the dawn." These metals have been pressured by concerns about a slowing Chinese economy, a weak Europe and stronger U.S. dollar. Demand concerns are leading to ideas that the base metals could be in an oversupply situation for a prolonged time, says TDS. Still, TDS looks for base metals to fare better in the latter part of the year. "The U.S. is recovering and it will continue to grow consumption of metals such as copper, zinc and lead alongside the recovering housing sector and strong auto sector," TDS says. "While not stellar, Europe is likely going to see an inflection point, providing a market for Chinese exports and start to satisfy the huge amount of pent-up demand that sits smothered by the current economic crisis." Further, the central banks of Europe, the U.K. and China likely will either maintain easy monetary policy or ease it up somewhat. "But most importantly, after seeing dismal economic data, Chinese authorities stated that they will not allow growth to move below 7%, and they have announced a stimulus program, albeit a modest one," TDS says. "The important thing here is that there is a floor under Chinese demand as a result of this 'policy statement,' and once inventories adjust that growth should be respectable." Meanwhile, low prices have left mining companies "cash poor" and is likely to mean scaling down of mine plans and lack of investment in new projects. "We would bet that there will be much less metal hitting the market than many currently project," TDS says. "As such, the stronger demand later in the year could tighten supply/demand conditions and lift prices robustly. These levels represent a good buying opportunity for base metals."