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Wednesday, September 27, 2006

Industrial Metals Outlook

By Yaser Anwar, CSC of Equity Investment Ideas

Prices for industrial metals, adjusted for inflation, are closely correlated to global industrial activity.

Inflation-adjusted industrial-metals prices were in a bear market from 1989 to 2001, when prices plunged 62%. Since then, real metals prices have doubled, although the gains have been off a low base.

In fact, over the last 20 years, real metals prices have only increased 1.2% annually. Today’s high metals prices may not be supported by fundamentals; G7 industrial production has tapered off after rebounding from its 2001 lows.

While industrial growth outside the G7, particularly in China, is helping to boost demand for industrial metals, the prices may be too high, especially if demand declines amid rising global interest rates.

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