Prices of steel-making raw materials could strengthen even if the eurozone slips into recession, says Investec Asset Management.

The key driver of commodities is China, and the South Africa/UK-listed asset manager highlights the importance of the fact that the Middle Kingdom has started to loosen monetary policy and committed itself to more fixed asset investment.

Investec says that Europe's share of global steel demand has fallen from 30 to 16 per cent in the past 15 years. Even if European demand were to fall 10 per cent because of the crisis, it would only represent a 1.6 per cent fall in world demand compared to what had been a 3 per cent fall in the early 1990s.

Europe’s share of global copper demand has also fallen from just over 30 per cent to just over 16 per cent in the same period.

Investec concludes that the effect of a European crisis on commodity demand may not be as large as markets think. Commodity prices have weakened this year and many attribute the slump to the problems in the eurozone. When prices went up in late June, Credit Suisse ascribed the positive developments to the outcome of the euro summit at the end of month.

Investec thinks resource equity valuations look attractive across the board, but that energy, certain diversified miners, iron ore miners, certain mid-cap gold miners and fertiliser companies look particularly compelling.

In short, although the situation in Europe could keep markets volatile, the asset manager does not believe that global economic growth will remain below trend once China has destocked and starts cutting rates. And that means that resource equities will return to more normal levels, according to Investec.