A wide gap between the price performance of metals traded on exchanges, such as copper, and others such as ferrochrome and iron ore may mean the sector is vulnerable to a drop, Investec said on Thursday.

We believe the weakness of non-exchange traded commodities points to a lack of underlying industrial demand and that investor demand and speculation are driving exchange traded prices up, analyst Rebecca O'Dwyer said in a note.

We see a risk that a shift in investor sentiment could lead to a commodity and mining equity sell off.

Investors may be buying up metals as an inflation hedge or as an alternative to the dollar and equities, O'Dwyer said. The move could also be speculation on global economic recovery over the next six to 12 months, or seeking to exploit an arbitrage opportunity between the London Metal Exchange and Shanghai.

Since Dec. 26 when copper touched a low, it has shot up 72 percent and zinc has gained 28 percent while spot iron ore prices have fallen 24 percent and ferrochrome 63 percent, she said.

In precious metals, platinum and rhodium are both mainly used in auto catalysts that clean exhaust, but exchange traded platinum is up 36 percent this year while rhodium is up 0.9 percent.

The continued weakness in the rhodium price, which is almost exclusively used in auto catalysts, indicates how poor autocat demand is. In spite of this, the platinum price has jumped sharply in the last few months. (Reporting by Eric Onstad)

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