Citigroup Says Mining and Metals Are in a Cooling Period

Source:

Analysts John H. Hill, Graham Wark and Paul Cheng warned, "Given hyper-compressed events in 1Q08, mining/metals are likely to be subdued for some time due to: exhaustion of the commodity momentum trade, after heady runs in copper, gold, steel and coal; the floor in the dollar driving profit-taking, which is hitting the equities harder than the commodities; further demand-side deceleration; and scant production growth or cash-distribution catalysts from earnings.

As mining and metals enter a critical period, as physical/fundamental support will be tested by the unwinding of the commodity re-flation trade, Citigroup forecasts that copper will be supported at $3.40/lb while aluminum will be above $1.20/lb.

Nevertheless, analysts John H. Hill, Graham Wark and Paul Cheng warned, "Given hyper-compressed events in 1Q08, mining/metals are likely to be subdued for some time, given: Exhaustion of the commodity momentum trade, after heady runs in copper, gold, steel and coal; The floor in the dollar driving profit-taking, which is hitting the equities harder than the commodities; Likely further demand-side deceleration, particularly in Europe; and Scant production growth or cash-distribution catalysts from earnings."

Citigroup asserts that mining and metals equities "remain more skittish than underlying commodities, as the market sorts out the level of sustainable earnings and appropriate cyclical multiples and mounting cost pressures."

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