Despite Severe Correction, Citigroup Insists Mining Supercycle Will Survive

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"The next up-cycle could be ever more powerful than its predecessor," Global Metals & Mining Analysts Alan Heap and Alex Tonks asserted, "because when global economic activity recovers demand will be amplified by restocking, and supply will be even more constrained after cutbacks closures and project postponements."

Citigroup cut its global copper and aluminum forecasts, but still remains positive on coal, copper and gold.

Global Metals & Mining Analysts Alan Heap and Alex Tonks said forecasts for 2009 have been reduced by ~20% as a result of slower demand growth.

"We remain most positive on the coal markets and copper. Negative on nickel and zinc," the analysts said.

North American Metals & Mining Analysts John H. Hill, Graham Wark and Paul Cheng said, "We are cutting copper and aluminum forecasts from aggressive, Street-high levels. For next year we expect copper at $3.65/lb (prev $4.75) and aluminum at $1.30 (prev $1.80). These are well above current spot and futures curves."...

Nevertheless, the Global Citigroup team insisted that the commodity super cycle will survive. "It is important not to lose sight of the long term picture. We regard these conditions as a correction (albeit severe) in a secular bull market...

"Indeed the next up-cycle could be ever more powerful than its predecessor," Heap and Tonks asserted, "because when global economic activity recovers demand will be amplified by restocking, and supply will be even more constrained after cutbacks closures and project postponements."

Heap and Tonks observed that speculators and investors are leaving commodity markets. "It is notable that both long and short positions are being liquidated and we interpret this as part of a broad de-risking tactic rather than a negative view on the relative performance of commodities."...

Hill, Wark and Chen said they regard current conditions "to be a severe correction amid a secular bull market for [Mining] M/Metals. Demand-side drivers from BRIC-country industrialization/urbanization remain intact, while supply continues to be constrained by resource scarcity, infrastructure bottlenecks, and the forces of resource nationalism."

"Indeed, the next up-leg for the M/Metals could be even more powerful than its predecessor because when global economic activity recovers, demand will be amplified by re-stocking while supply is pinched by mine cutbacks/closures and project delays," they suggested.

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