The Hindu Business Line : Industrial growth prospects to spur metals demand

METALS demand growth has far under-performed industrial production growth so far in 2005, with the difference believed to be accounted for by heavy de-stocking at the consumer level.

Any upturn in economic activity will see this de-stocking halted, and perhaps even reversed — a potentially explosive combination for metals demand in the first half of 2006, according to experts.

The key issue obviously is whether or not economic growth will accelerate.

The OECD lead indicators released on Friday appear to suggest a positive move. Admittedly, the OECD lead indicator has not been a great indicator of the direction of metals prices in the past two years, because of the impact of China, which is not included.

"We still view it as a key indicator of industrial growth rates and therefore, metals demand growth rates in the OECD area," said Mr Jim Lennon of Macquarie Research Commodities, adding that after a weak first half 2005, the positive outlook for the Eurozone bodes well for the remainder of the year and the first half of 2006.

The more positive outlook is generally supported by an increase in consumption and investment, and most notably a well-performing export sector, the analyst pointed out.

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