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The fortunes of base metals producers are based primarily on one very big customer: China. So, it's little wonder that most stocks associated with producing copper and other metals are stuck in no-man's-land right now – up from recent lows but nowhere near their earlier highs.

The stocks appear to reflect uncertainty about China's economy, with investors split over whether growth has been seriously hurt or merely interrupted.

For example, BHP Billiton Ltd. has bounced 25 per cent since June, but is still down 26 per cent from its recent high in April 2011. Similarly, Rio Tinto has risen 27 per cent since June but is down about 30 per cent since February 2011.

The seesawing is likely due to a recent round of encouraging economic news from China – which accounts for about 40 per cent of the world's copper demand – that followed earlier concerns that the country was being buried in excess copper inventories.

As Standard Chartered reported in April (via FT Alphaville ), "On a routine trip to examine copper inventories in the bonded area in eastern Shanghai last week, we were astounded by how much copper is being stored in warehouses." At one of the biggest operators, they continued, the covered warehouses were full. "The staff car park was used to store copper. The driveway between warehouses was blocked by copper. The warehouse operator told us that it cannot accept additional inventory until existing inventory is shipped out."

No wonder base metals producers were suffering back then. But Standard Chartered noted in the same report that it probably wasn't wise to get overly bearish if the global economy improved in the second half of the year.

While Europe continues to fizzle and the U.S. economy has been making little more than slow progress in its recovery, China has been providing some encouraging news. The HSBC manufacturing purchasing managers index for November rose to 50.5 from 49.5 in the previous month, year-over-year industrial production rose 10.1 per cent from 9.6 per cent in October and retail sales rose 14.9 per cent in November from 14.5 per cent in the previous month.

"Growth in emerging markets should be led by China, which will likely avoid the feared hard landing," said Alberto Ades, co-head of global economics research at Bank of America, in his 2013 look-ahead. "China's short-term growth momentum is already on the upturn, and annual gross domestic product growth should rise to 8.1 per cent in 2013 from 7.7 per cent in 2012."

Base metals producers have been sensing improvement in China over the past six months. But an outright recovery there is probably not yet priced in.

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