With aluminum, molybdenum and zinc expected to catch up to othermetals in 2011, shares of Thompson Creek Metals Co., Alcoa Inc. and TeckResources Ltd. should outperform the sector, according to DesjardinsSecurities analyst John Redstone.
He pointed out that Thompson Creek will likely expand molybdenumproduction by about 8% in 2011 and make further progress toward thestart-up of the Mount Milligan copper mine.
Mr. Redstone told clients that not only is Alcoa currently tradingmore than 50% below its replacement value, but it has lowered itsbreakeven aluminum price to roughly US$1.00 per pound.
As for Teck, the analyst anticipates it will hold onto its role asthe world’s third largest zinc producer. This will be supported by zincconcentrate production at the Red Dog and Antamina mines, as well aszinc metal production at the Trail smelting complex in British Columbia.
While Mr. Redstone expects prices forother metals and bulk commodities to remain strong, he noted thatmolybdenum, aluminium and zinc lagged (most notably copper) in thesecond half of 2010. This came after a recovery from extremely oversoldpositions in 2009 and early 2010.
“This was principally because of the superior underlying fundamentalsof the copper market,” the analyst said. “However, in 2011 we expectall of our covered metals to move into a deficit market, ie demandshould outstrip supply.”
With the current inventory not excessive for any metal, he suggested that any drawdown should lead to upward price pressure.
For molybdenum in particular, Mr. Redstone pointed out that premiumscurrently being discussed between producers and consumers for deliveryin 2011 have apparently improved significantly from 2010 levels.
“In spite of lacklustre demand from the stainless steel sector (whichaccounts for roughly 25% of molybdenum end use), inventories remain athistorically low levels,” he said. “Hence, as the market moves intodeficit, prices should react sharply.”
In addition, India has emerged as a major consumer of molybdenum.