The Heavy Metal Index: Unstoppable Stocks (Part 2)

On May 9th we wrote - The Heavy Metal Index: Unstoppable Stocks.  How true that is, just look at the returns in one month on the stocks we recommended:

Metal stocks just can't be stopped, it's out-of-control. 

However, like anything, these stocks have had a huge run, so how long can it last and should you bet against them?

A surging dollar coupled with a dull season in the forthcoming June-September quarter would see further correction in metal prices, say analysts.

Basemetals.com analyst William Adams said on Thursday he expected prices to migrate from bull market to bear market some time in the June quarter, so he was not surprised by recent trends. "That said, any major disruption could still lead to a spike, so there is still upside risk."

But other commentators were more optimistic. Rio Tinto CE Tom Albanese said world demand for metals and minerals was expected to double by 2022, driven by China and India, and supply was struggling to meet it.

Nedcor Securities analyst Johan Pretorius said on Friday base metal prices had been surprisingly low over the past couple of weeks, with the exception of copper. Zinc and nickel had been weakening over the past month. Nickel has dropped 20% in the past month on fears of waning stainless steel demand. Pretorius said the copper price last week was reacting to the usual fears of global economic slowdown and rising inventories, although stocks in Shanghai and London fell slightly, causing the price to strengthen.

He said markets were ready to take profits in base metals and there was no structural reason for prices to fall. Last week's upward revision in US gross domestic product growth in the first quarter could have improved sentiment towards other equities, causing fund managers to switch from resources to financial and industrial shares. Index tracker funds, which invest in physical metal, have to sell physical stocks when the market turns, which makes short-term price movements more volatile.

The gains have been good Masters, just something to watch if you have been playing these stocks.