Merrill fund says aluminium, zinc firms good picksFri Oct 22,...

Merrill fund says aluminium, zinc firms good picks

Fri Oct 22, 2004 11:08 AM ET

By Ben Harding

LONDON, Oct 22 (Reuters) - Aluminium and zinc producers look to be good investment picks in 2005 as warehouse stocks begin to dwindle, Merrill Lynch Investment Managers (MLIM) said on Friday.

MLIM's natural resources team, which has some $1.8 billion under management, said it was increasingly looking to invest in aluminium and zinc producers -- metals which have become scarcer recently, just as copper, nickel and others did last year.

In a briefing to journalists, the head of MLIM's natural resources team Graham Birch said 2005 in general looked like it would be another record year for mining stocks.

Fundamentals such as low stocks, little new supply and continued Chinese demand, were still in place he said, despite nerve-racking swings in investor sentiment.

"Some of the other metals which China has not been so short of...look like they are going to join the party in 2005," said Evy Hambro, director of MLIM's natural resources team.

"At the right moment we will switch some of our portfolio into some of these resources.

"We think aluminium is going to be a late cycle metal. We've seen a sudden drawdown in aluminium because China haven't had the power to make it," Hambro told Reuters.

London Metal Exchange aluminium stocks have fallen to 715,000 tonnes from 1.37 million a year ago, but shares in aluminium producers such as Canada's Alcan (AL.TO: Quote, Profile, Research) and America's Alcoa Inc. (AA.N: Quote, Profile, Research) have broadly traded sideways so far this year.

Zinc producers also have the potential to shine late in the metals boom Hambro said, because such little money had been put into zinc exploration and production.

While zinc inventories in LME warehouses are at roughly the same level they were a year ago, stocks of 712,000 tonnes are almost 10 percent down on April's figure.

"We are still at an early stage there, but it is probably one of the last metals to perform. The market will be in deficit next year, and this will help prices to improve," he said.

"We would want to buy pure zinc producers."


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http://yahoo.reuters.com/financeQuoteCompanyNewsArticle.jhtml?duid=mtfh13221_2004-10-22_15-08-40_l22502998_newsml

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