NEW YORK ( TheStreet) -- Credit research firm CreditSights states that upbeat sentiment towards metal prices has extended into 2010, but more upside is limited in light of the large quantities of stocks still sitting in exchange warehouses.

CreditSights adds there's a good chance metals prices will stay volatile as investors remain cautious about the pace of Chinese economic tightening. "While Chinese metal consumption seems to be unaffected at this point, a more noticeable impact may be seen if inflation begins to accelerate," CreditSights writes.

Currently, CreditSights says it's favoring miners over steelmakers in light of the former's exposure to emerging markets and the positive fundamentals for bulk commodities like iron ore and metallurgical coal. The research firm also points out that miners would be adequately prepared for a correction in metals prices with their completion of balance-sheet recapitalizations.

"On the other hand, steelmakers in the U.S. and Europe are likely to face a slow and gradual recovery as end-markets are in the early stages of the healing process," CreditSights writes.

Higher fourth-quarter 2009 metals prices were mainly driven by robust demand from China and indications of recovery in developed regions; but the speed of recovery in developed regions has lagged given ongoing problems such as high unemployment and tight credit, according to CreditSights.

Mining stocks closed in mixed territory Monday. Vale ( VALE) closed up 0.9% to $30.04, while Freeport-McMoRan ( FCX) added 1.3% to finish at $79.80.

Barrick Gold ( ABX) closed Monday down a mere 1 cent, at $39.41, while Peabody Energy ( BTU) finished down 0.9% at $46.60.

-- Reported by Andrea Tse in New York

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