By Michael Taylor
LONDON, Jan 14 (Reuters) - Minor metals used for steel production are in pole position to lead an industrial metals recovery due to infrastucture projects in emerging markets, a JPMorgan (JPM) fund manager told Reuters.
Ian Henderson of JPM's Global Natural Resources Fund, said that demand from China and India will support metals such as ferro chrome and molybdenum, already hit by falling demand from steel mills.
Their production is often dominated by a limited number of producers.
"In some cases, because of the dominance of South Africa in terms of supply, we think that these commodities can snap back," said Henderson, whose fund has assets of about 815 million pounds.
As a lot of the world's ferro chrome is mined in South Africa, its price can be influenced by localised events -- such as power problems or industrial action.
The combination of global stimulus packages announced and production cuts for minor metals will help boost demand because there are often few alternatives to use in steel production, he added.
Many minor metals are byproducts of industrial metals and supplies have been curbed by production cutbacks. Henderson said that although investors had not expected emerging markets' liquidity to be effected as much as it has -- finances in such regions are a lot better than in previous crises and starting from a better position.
On a more cautious note however, Henderson said all London Metal Exchange metals could have another downturn because of the worrying build-up in physical inventories.
Aluminium stocks stand at 2.4 million tonnes -- near to the record above 2.6 million tonnes hit in June 1994.
The price of aluminium has fallen 55 percent since its record-high of $3,380 per tonne touched in July 2008.
The metal used in transport and packaging has come under pressure in recent months on news of falling sales data from auto makers and the slowing global economy.
"There is a lot of excess aluminium washing around in the system today, despite the fact that the price is low and there have been huge cuts in production," he said. "It is quite possible that aluminium will continue to be quite soft."
GOING FOR GOLD
In precious metals, Henderson still favoured gold and saw demand continuing to rise because of anxiety in currency markets -- itself a result of the financial turmoil.
"In the current climate, it's clear that investor appetite for gold ... has remained very robust throughout 2008 and it looks like that trend is continuing this year."
Gold prices rose more than 5 percent last year but have fallen about 6 percent so far this year, as lacklustre jewellery demand weighs on prices.
"It has clearly done very well in 2008 ... the longer we see this (economic) pandemonium, people that hold gold will be inclined to keep hold of it."
Looking at the macro picture however, Henderson said there was not much sign anywhere of economic activity having bottomed, or getting better.
Highlighting this, JPM's UK-based fund, which has holdings in about 200 worldwide commodity companies, lost 52 percent of its value over the last 12 months to Jan. 9.
"There are reasons to suggest the current environment is not going to go on forever ... therefore extrapolating current circumstances through to the next three to five years is probably being over-pessimistic," Henderson said.
But although Henderson's fund has spiked by 21 percent during the last month, he said spotting signs of any economic recovery is proving difficult.
"Investors try to second guess turning points -- they are doing that at the moment ... I can't sadly say that I know or am certain of things turning around."
(Reporting by Michael Taylor; editing by William Hardy)