Toronto, 17 october 2011: Reuters

Tumbling metal prices and the specter of a fresh economic crisis have peeled layers of value off base metal producers, creating an opportunity to buy some of North America's top miners at bargain prices. With the traditionally strong first quarter just a few weeks ahead, shares of Teck Resources , Freeport McMoRan and other miners are already clawing back from lows touched last week, and analysts say now may be the time to jump back on the gravy train.

But buyer beware: stagnant economies in the developed world and a slowdown in Chinese demand as the Asian nation battles against soaring inflation could lead to more bumps in an already rocky road.

"We may see another leg down," said Stifel Nicolaus mining analyst George Topping. "But I do think, if you're buying at these prices, you'll get an opportunity to sell them again in May at a significantly higher price." Topping recommends companies that have strong balance sheets and growth prospects. His top picks are Quadra FNX , down more than 35 percent since Jan. 4, and HudBay Minerals, which has fallen some 40 percent.

Canada's largest base metal producer, Teck Resources, is also looking cheap having stumbled more than 40 percent since January, while North America's top copper producer, Freeport McMoRan, is also down 40 percent. The shares have tumbled in recent months along with falling metal prices as investors retreated on fear of a global economic downturn in part triggered by Europe's debt crisis.

Steel-making metals such iron, nickel, zinc and molybdenum have all slipped, with zinc and nickel both down more than 20 percent so far this year. Copper, in particular, has had a wild ride. The metal, used in wiring for new buildings and electronics, rose to a record $10,190 a tonne on the London Metal Exchange ( LME) in February, only to fall as low as $6,635 a tonne last week.

"Copper has fallen a lot more than iron or even molybdenum," said Topping. "This is speculators that are nervous and rushing for the door, but I would say it's a different environment from 2008."

With the Greek debt crisis threatening European financial stability and the economy in the United States slowing, the specter of the 2008 financial crisis is looming over investors. Even though a full-fledged recession would certainly hurt metal demand, Salman Partners mining analyst Raymond Goldie said that the sell-off in base metal equities has been overdone. He points out that most of the global demand for base metals now comes from rapid urbanization in Asia.

"I don't think the equity market is being selective enough," Goldie said. "Companies that produce base metals have been hurt by the bad feelings about the equity markets in general, but with other ones, like European banks, (investors) are right to be worried."

THE CHINA FACTOR

Despite the global economic slowdown, metal producers are still selling their products, mostly to China, which accounts for some 40 percent of global copper demand. But the high price of copper earlier this year prompted China to run down its stocks, leaving the industry anticipating its return to the international market for a top-up.

Still, efforts to curb double-digit inflation in the country have gained traction, and that has hit metal demand. "Clearly things are slowing and they are slowing by design," said Charles Bradford, a metals analyst with Bradford Research. "They've got an inflation problem and that's how you fight inflation."

"It seems to me the growth rate in copper demand remains pretty good," said Bradford. "As long as China stays at a relatively high growth rate and they are."

In order to build out cities, and bring electricity into rural areas, China will need more copper - and that means that once the price is right, the Asian nation will start buying again. Demand for steel-making metals in China is also expected to remain strong.

"Copper is still a strategic metal for a lot of the emerging markets with manufacturing and electrification programs," said Topping. "I would say that it is right up there with oil as a strategic mineral".

Ends --

Reuters - for Commodities Now.