NEW YORK (TheStreet) -- Base metals will likely advance during the week, in line with our forecast , as metal selloffs over the past two weeks have created buying opportunities. Speculation of rising Chinese demand, an announcement from the South Korean government that it will hold conversations with North Korea to reduce tensions in the region, and Citigroup's (C) metal stock upgrades, further improved the buying sentiment in the markets. But volatility likely will continue on Europe's debt crisis and China property issues.
Shanghai copper inventories have declined 35% from 84,922 tons on April 16 to 54,944 tons on May 25. This remarkable decline in inventories indicates a positive trend in Chinese copper consumption. Meanwhile, China aluminum imports in April increased 3.3% to 28,987 tons from 28,054 tons in March. Zinc imports in April zoomed 74% to 31,374 tons from 18,069 tons in March.
Rio Tinto (RTP), the world's third-largest mining company after Vale(VALE) and BHP Billiton(BHP), anticipates China's demand for base metals to expand. Rio Tinto's CEO Tom Albanese expects the demand for iron ore, aluminum, and copper to double over the next 15 years.
"China's demand for iron ore, copper, coal and aluminum is expected to grow over the next 15 years, after which time we expect to see increasing demand from India. The long-term outlook, therefore, continues to make our business an attractive proposition," said Rio Tinto Chairman Jan du Plessis, during the company's annual general meeting on Tuesday.
Base Metal Stocks Look Attractive
Citigroup metals analyst Brian Yu believes that metal stocks offer good value. He upgraded AK Steel(AKS) to buy citing that the stock price correction is overdone. However, he cut the earnings and price targets for the stock.
Based on valuation, Yu said shares of copper giant Freeport-McMoRan Copper & Gold(FCX), iron ore miner Cliff Resources(CLF), our base metal stock pick, and scrap-metal recycler Nucor(NUE), offer investors maximum upside.
The three mining giants Vale, BHP, and Rio Tinto look very attractive with price-to-earnings ratios of 7.83, 9.45, and 6.89, respectively. Among copper producers, Freeport, and Teck Resources(TCK) look attractive with lower P/E multiples of 8.34 and 9.15, respectively.
Among major steel producers, Ternium(TX), Posco(PKX), ArcelorMittal(MT), and Steel Dynamics(STLD) look attractive with P/E ratios of 9.57, 10.07, 10.30 and 10.30, respectively.
