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BCA Research- How To Play The Commodity Cycle

BCA Research- How To Play The Commodity Cycle

July 04, 2006

We advise investors to position for outperformance of oil versus base metals prices.

Our view is that the overall commodity complex is in a secular bull market. However, with central banks tightening and global growth in a cooling phase, cyclical commodity demand is easing.

Against this backdrop, the crude oil price is likely to outperform base metals. Chinese trends buttress the case. Chinese imports of base metals have already started to cool, and could moderate further as the authorities target a slowdown in select capital spending industries and real estate. Meanwhile, Chinese oil imports are still in an uptrend and should stay strong. Gasoline demand is a key driver of energy imports, and we expect sales to remain firm as the Chinese authorities encourage consumer spending.

Finally, technical indicators highlight that there is more froth in the base metals market compared to crude oil.

posted by gsg @ 7:56 AM