As we are all aware, metals markets have been on fire over the past couple of years, driven by the overall strength of the global economy and insatiable demand from developing nations such as China and India. While I acknowledge that metal prices have backed off from their recent highs, I believe global demand will remain fairly robust. China's economy continues to expand at a double-digit clip, India's GDP growth is clocking in at around 9%, and according to the World Bank, emerging markets overall should see growth that remains above 5.5% for both 2006 and 2007. Driven by the developing-market growth engine, the global economy is expected to expand by 4.9% in 2006 before slowing a mite to 4.5% in 2007.

Whew, that was a mouthful, wasn't it?

In any case, my point is simple: Global economic growth remains strong, and demand for commodities continues to be robust. As a result, I believe that metal stocks, among other commodity plays, have further room to run. Two of my favorite plays in the sector are Aluminium Corporation of China (NYSE: ACH), better known as Chalco, and Southern Copper (NYSE: PCU). Let's take a look and see if I haven't gone soft in the head.
Aluminium Corporation of China

Chalco is the largest manufacturer of alumina and aluminium in China, producing approximately 7.2 million tons of alumina in 2005 (making it the world's second-largest player after behemoth Alcoa (NYSE: AA)) and more than 1 million tons of aluminium. At the end of last year, Chalco's nine owned or operated plants had annual production capacity of 8.3 million tons of alumina and 1.5 million tons of aluminium. These numbers, not to mention a number of recent acquisitions, give the company some wiggle room in terms of ramping up supply in a country where, according to rival Alcoa's estimates, aluminium demand is expected to increase at a compound annual rate of 12.5% between 2005 and 2009.

Now, let's take a look at aluminium prices, which have been on a tear this year. The metal currently commands a cash price of roughly $1.31 per pound on the London Metal Exchange (LME), up 54% from 2005. Despite the perennial bears' predictions of an imminent decline, I believe prices will continue their upward trajectory; Century Aluminium's (NASDAQ: CENX) president recently noted that he expects "healthy" aluminium demand growth of 4%-6% in 2006 and 2007, but only a 2%-3% increase in production capacity. Simply put, demand growth continues to outpace production capacity increases and will continue to do so for the near future, especially in China. In such a tight supply-and-demand situation, prices can't help but rise.