Morgan Stanley: The Super Cycle Will Push Base Metals Up Another 30% In 2010

Morgan Stanley has come out bullish on metals for 2010. Expect on average a 30%+ rally due to continued demand strength according to their latest 1Q10 Global Metals Playbook. They're especially bullish on copper, platinum, and dry bulk commodities such as iron ore and coking coal.

Morgan Stanley: We expect weighted average gains in base metal prices of 32.4% in 2010, driven by a strengthening industrial production cycle, with copper remaining our preferred exposure in this sector.

Anticipated financial market conditions still point to further increases in investment demand for precious metals, while we expect a revival in global automotive production to be particularly favourable for platinum group metals.

We also expect a cyclical recovery in contract bulk commodity prices in 2010 as global steel production and power consumption are set to rise, with hard coking coal and iron ore prices likely to increase the most YoY in percentage terms, in our estimation.

Our highest conviction Overweight stock picks based on these views are JFE Holdings, Vedanta, Alcoa, Xstrata, and Vale.

MS Research

Of course this all rests on the assumption that the Chinese demand super cycle will continue without a hitch. Personally, we don't have the stomach for direct commodities bets at this juncture. Commodities prices could easily halve in a major China slow down scenario.

If anything, the better option in our view (for commodity bulls) would be to find commodity producers with lower-cost advantages in their space, and who might be providing a decent value for their price. Such opportunities will likely take substantial digging to find given the 2009 rally we just witnessed.

In any case, here are Morgan Stanley's top picks from the piece:

MS Research