By Jesse Riseborough Jan. 13 (Bloomberg) -- Metal prices may average 32 percent higher this year because of strengthening industrial production, driven by growth in China, said Morgan Stanley. “The economic outlook has improved materially in response to unprecedented fiscal and monetary stimulus initiated in 2009,” analysts led by Melbourne-based Peter Richardson said today in a report, citing copper as its preferred metal. Morgan Stanley raised its 2010 aluminum price forecast 16 percent to 98 cents a pound, copper by 7 percent to $3.18 a pound and zinc 21 percent to 97 cents a pound. JFE Holdings Inc., Alcoa Inc., Xstrata Plc, Vale SA and Vedanta Resources Plc are the broker’s top stock picks. “We expect the strong and broad gains in base metal prices in 2009 to be sustained in 2010 after a period of excess importation in China, with the prospect of a weighted average increase in U.S. dollar prices of 32.4 percent,” Morgan Stanley said. “However, in contrast to 2009, we expect price appreciation to be growth-driven rather than liquidity driven.” The analysts also raised forecasts for bulk commodities driven by increasing global steel production and power consumption. They boosted estimates for Asia iron ore contract prices by 6 percent to $69.60 a metric ton, coking coal by 9 percent to $175 a ton and thermal coal by 6 percent to $85 a ton. Metal prices in London gained 98 percent last year, rebounding from a 49 percent decline the previous year. To contact the reporter on this story: Jesse Riseborough in Melbourne at jriseborough@bloomberg.net

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