Iron ore may outperform copper on price-ratio analysis: Clyde Russell

Dec 04 2012, 11:33 IST
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SummaryCopper and iron ore demand and prices both stand to rise, given the improvement in both of China's purchasing managers' surveys, but the steel-making ingredient may have scope for bigger gains.

ore starts to once again underperform copper.

It's also worth pointing out that just because the ratio has narrowed in the past due to iron ore rallying, this doesn't mean this will necessarily happen again.

It could be that this time copper declines while iron ore remains relatively stable, and certainly there are a few reasons to believe the red metal may struggle.

Rising mine supply in 2013, anecdotes of elevated levels of unreported stockpiles in China and an uneven economic recovery may weigh on copper.

The official China Purchasing Managers' Index, which rose to a seven-month high of 50.6 in November, also shows growth is being led by the state sector, with large enterprises undertaking infrastructure spending.

This is probably more supportive of iron ore, given that building infrastructure such as railways tends to be more steel-than copper-intensive.

In the present environment of a modest recovery in China, being led by state capital expenditure, it seems that iron ore is a better bet than copper.

(Clyde Russell is a Reuters market analyst. The views expressed are his own)

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