London, 4 October 2011: Reuters

Chinese growth prospects remain healthy but at lower rates and the world's top copper consumer cannot boost commodity markets on its own the way it did some three years ago, metals consultancy CRU said on Monday. Paul Robinson, Group Manager Non Ferrous Metals at CRU, told a London Metal Exchange ( LME) Week seminar that China would not build up stockpiles of the red metal as it did then.

The metals market had been anticipating China's return after running down inventories of base metals, particularly copper, but a slowdown in the auto and housing sectors is seen capping demand. Beijing's monetary tightening measures were also impacting the short term outlook, Robinson said.

"China funded our recovery in the commodity world ... China has been the commodity story," he said. "We don't believe it can step in and give the commodity markets the recovery it saw in 2008 ... (China is) overall positive but not fantastically positive ...Chinese growth rates remain healthy but at lower rates."

China is estimated to consume about 40 percent of global copper demand, which is forecast at around 19 million tonnes this year. "We don't see China building stockpiles of copper like they did in 2008 and 2009," he said, citing the reason as being that Chinese stockpiling boosted copper prices and ultimately Chinese buyers ended up paying more for their materials.

Ranking base metals in terms of consumption growth prospects, Robinson put aluminium first, followed by nickel, zinc, copper, lead and lastly tin. "Aluminium is both a nation-building metal and emerging middle class metal," he said, adding said that the beverage sector, for which aluminium is used in packaging, and the transport sector were strong.

Robinson said growth in copper consumption was capped by three elements -- a lower growth rate in Chinese consumption, a substitution into aluminium and mine constraints. He also said no significant impact on copper was seen from this year's unrest in the Middle East and North Africa.

Insights into uncertain metals market

The metals industry gathers in London for the annual LME Week, with many participants hoping for an insight into commodity markets after a torrid few weeks due to global economic uncertainty. Here are some analysts' views of what could lie ahead:

MACQUARIE

"The price crash has been driven by fears of a double-dip economic slowdown over concerns of a financially driven crash in Europe and weaker U.S. and Chinese growth prospects. "The most extreme fears are a repeat of the situation at the end of 2008 and 2009, when demand collapsed amid a freezing in credit markets. This seems unlikely, but so long as uncertainties over the European debt and banking bailout remain, concerns about a repeat of 2008 will remain.

"For China, the persistence of the credit tightening throughout 2010 (many including ourselves had thought it would have ended by now) is leading to growing concerns of a deeper and more prolonged China slowdown. We think that this is unlikely since inflationary pressures are likely to abate rapidly in China as the rest of the world slows and growth eases in the coming months.

"On the supply side, the appalling performance of supply growth (especially in nickel and copper) will come under the microscope, and debate about how quickly new projects will ramp up will be to the forefront."

MORGAN STANLEY

"Global financial and commodity markets have become even more risk averse since the publication of our Global Metals Playbook: 3Q11 on July 26. "Driving this are increased risk of a renewed recession in the U.S. and Europe, greater global financial uncertainty because of a worsening debt crisis in Europe with attendant pressure on banks, and concerns about a hard landing in China.

"Although adverse outcomes to all such risks is not our base or even our bear case, the risks of a developed market (DM) recession have risen sufficiently in 3Q11 for us to adopt a bear-case price scenario to reflect a DM recession, with a probability weighting raised to 40 percent for base metals prices.

"With the rapidly diminishing prospect of global growth being robust enough to deliver stronger base metals prices next year, we have lowered our base price forecasts in 2012 by 16.1 percent on a weighted average basis and cut our copper price forecast 17.4 percent."

ROYAL BANK OF SCOTLAND

"RBS have for some time argued that underlying demand for industrial commodities in China is holding up well and that this will likely continue, even if western economies move into recession.

"The caveat is the possibility that a recession in western countries impacts on Chinese growth more than we have factored into our base case. RBS forecasts 2012 Chinese GDP growth to be 9 percent, in our opinion if growth is less than 7 percent year-on-year, then that would give us great concern.

"A lower price environment may bring the respite consumers need - as long as the changing macroeconomic backdrop does not lead to an offsetting collapse in end-user demand."

BARCLAYS CAPITAL

"Concerns about the risk of a repeat of the 2008-09 crisis and slowing growth mean further weakness in prices looks likely and the road ahead bumpy. But we believe that if the European situation can be stabilised, then the conditions for a price recovery may start falling into place.

"We have revised all of our base metal price forecasts lower to reflect the weaker demand outlook and the collapse in sentiment. This has reduced the tightness in some market balances, with the copper stocks-to-consumption ratio, for instance, no longer signalling either extreme tightness or exaggerated upside price moves.

"Provided the global economy misses recession and China engineers a soft landing, as our economists expect, we believe that prices should recover later in the year. However, the outlook has rarely appeared so uncertain, with the potential for a domino effect from a single event risk."

DANSKE RESEARCH

"The commodities sell-off seen late summer has been fuelled by a remarkable change in sentiment towards the industrial cycle, the dollar and risk appetite in general. "Although we had predicted a summer lull in prices, the magnitude of the declines has surprised us, but we still see demand recovering in Q4. Together with a weaker dollar eventually, this should imply an end to the recent widespread sell-offs.

"We have lowered our base-metals forecasts somewhat. However, copper could still hit $10,000 during the course of next year."

BofAML GLOBAL COMMODITY RESEARCH

"After months of little progress in policy-making in the U.S. and the euro zone respectively, the deep structural problems in those two geographical areas remain largely unsolved. Not surprisingly, private sector confidence has fallen sharply and advanced nations are at the doorstep of yet another recession.

"Although we have argued before that any contraction may be less deep compared with 2008, though it may last longer, this is not a bullish environment particularly for cyclical assets like the base metals.

"Acknowledging the current cyclical headwinds, we have downgraded base metal price forecasts already twice this year (in March and July) and we maintain our cautious stance towards those commodities at least until policymakers in the US and Europe take tangible action."

Ends --

By Andy Home, Reuters market analyst – for Commodities Now with permission.

The views expressed here are his own.