China's economic cooling has fanned expectations of a decline in commodity demand, blinding investors to one of the best buying opportunities in the metals and mining sector in years following the dramatic share-price decline throughout the first quarter, according to Merrill Lynch. Lead analyst Russell Skirrow says investors are committing an error of pessimism, overlooking supply tightness and steady demand from mainland industry as two factors that bode well for long-term metals prices. 'Some slowing in Chinese demand is good for the metals markets at present, because high prices always lead to too much supply being brought onto the market, which then leads to oversupply and prolonged depressed prices,' according to the brokerage's metals and mining report, The Mercury is Rising. Shares of mining companies collapsed in the first quarter owing to an unwinding of the US dollar carry trade probably initiated by fears of a hard landing in the Chinese economy as Beijing clamped down on credit. Mining companies and China-themed shares ranked as two of the most inflationary markets last year. The report forecasts Asia could account for 50 per cent of global metal consumption within 10 years, up from 40 per cent today. Last year China accounted for 19.6 per cent of global consumption of copper and 7.6 per cent of nickel, lagging only the United States in aluminium consumption at 18.3 per cent. Assuming a soft landing, the report says the supply of metals is likely to remain tight for the foreseeable future owing to China's huge net import requirements. Merrill Lynch forecasts aluminium will be the next industrial metal to rally. 'Volatility [of aluminium prices] has picked up but the underlying trend is intact,' the report says. Price increases in copper led producers to restart idle capacity, which resulted in higher inventories and a temporary drag on prices, despite a positive long-term picture, the report says. However, aluminium inventories appear depleted despite 18 months of peak production. 'The current aluminium price is poised ... to rally as the inventory continues to decline while the trailing 12-months consumption number rises,' the report says. Among emerging-market resources plays, Merrill Lynch recommends Brazilian producer Vale do Rio Doce as its top-rated value proposition. The brokerage also likes Anglo American on its price/earnings. Most of the large producers also rank favourably, including Norilsk Nikel, Alcoa, BHP Billiton, Rio Tinto and Teck Cominco. The brokerage is less upbeat on South African producers owing to the strength of the rand. 'Since last month, due to strong sector performance all of these companies have tended to move up in their peak-trough valuation range and the temperature has increased ... but [they are] still way off boiling point,' the report says.