TORONTO, March 7 (Reuters) - Demand for global metals should improve radically between now and next year, due in large part to bulk consumption by Chinese infrastructure projects, a top strategist for HSBC metals said on Sunday.
Andrew Keen, head of metals and mining equity research for Europe, the Middle East and Africa for HSBC Securities Inc, told the annual Prospectors and Developers mining conference in Toronto (PDAC) that the shape of Chinese stimulus spending in massive projects will help global metals demand grow 6.6 percent this year.
"It's reasonable to assume in our view that we're about half way through the downturn and that markets should start to radically improve in terms of fundamentals at some point in 2011," Keen said of the global commodities outlook.
The annual PDAC convention is seen drawing more than 20,000 miners, analysts, and resource pundits to Toronto this year and is one of the world's largest mining conventions.
When it convened in March last year, the mining world was facing a demand slump that sunk the stocks of the mightiest miners as investors gauged the depth of the global economic crisis.
"I think that the worst of the demand cycle is now behind us," Keen said in one of the PDAC's opening speeches on Sunday. "This recovery is already in some markets ... and there's one or two markets we think have got ahead of themselves and are a little bit vulnerable to correction, but I will say I am very bullish overall."
Keen is extremely bullish on the prospects of bulk commodities such as iron ore and coking coal, both key to steel production.
He argued that with the bulk of the Chinese stimulus spend being directed toward infrastructure projects, steel demand in China surged, setting the stage for a rise in iron ore prices.
"For the record, we are recommending overweight positions in bulk commodity exposures, in global names such as Rio Tinto (RIO.L), Anglo American (AAL.L) and Vedanta Resources (VED.L)," said Keen.
"We are also relatively bearish about copper and have underweight recommendations on stocks such as Xstrata and Antofagasta."
The global economic slowdown led to a sharp reduction in capital expenditure spending in 2009, but with significantly stronger balance sheets in 2010, companies are likely to begin reinvesting again, said Keen.
This is likely to lead to more M&A activity in the sector, as companies identify new projects to drive future growth.
Keen said that junior mining space is particularly likely to witness a sharp increase in M&A activity this year.