Credit Suisse Forecasts Growth Period for Long-Term Commodity Demand


". . .we believe there is substantial long-term upside potential for steel, metals and mining stocks."

Credit Suisse metals and mining analysts say they are "selectively bullish" on certain commodities. . .and remain "long-term bullish" on commodity demand driven by demographics and global infrastructure spend.

The analysis suggests we are currently in a growth period for long-term commodity demand driven by the ongoing industrialization of China and emerging markets; global demographic shifts that will drive commodity-intensive demand for infrastructure; and by a wealth-transfer effect, which requires infrastructure that is the "single greatest driver of long-term commodity demand."

The analysts wrote, "We believe global industrialization will continue and, as such, ongoing demand for commodities should remain strong. . .we believe there is substantial long-term upside potential for steel, metals and mining stocks."

"China appears in effect to be frontloading its own industrial recovery and stimulus by buying commodities as a cheap asset class. This compares with the Western world, which tends to buy most when demand is at its peak and prices are high. This is a well thought-out strategy from China but we should caution that apparent demand growth rates are well above where we see real demand growth right now and, as such, demand from China is unsustainably high in our view."

Credit Suisse advises the strongest commodities for its long-term view of the global metals and mining sector are:

Copper: potentially 21mt of demand by 2012 will not likely be met by new mine capacity. Even under a significant long-term slowdown in China, "we would get to 25mt of copper demand by 2016—which means new mines are necessary. . ."

Zinc: "Although zinc is not favored by many investors, we believe they often forget how late-cycle this metal is (within the 20- to 30-year cycle). . ."

Iron ore: "we are positive structurally on volume, as low-cost high-quality ore continues to take market share from high-cost production, notably in China and India. . ."

Coal: thermal coal looks set for the long term. Metallurgical coal is structurally tight in supply, but geared to external Chinese demand; "so it may take time to return to 2008 levels."

Platinum: "limited new capacity, ongoing supply problems and increasing global care and jewelry market, with cleaner cars suggesting a long-term switch to diesel. Fuel cell demand remains a positive long-term possibility."

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