aul - nice support at 3, page-34

zinc is going to go higher yet! Commodity strategists: Base metals to rise, bank says
Source: Bloomberg 2/5/06

Copper, zinc and aluminium may extend their gains this year as investment funds keep betting on higher prices as the expanding economies of China and Japan spur demand, said National Australia Bank Ltd., the nation's largest lender.

Copper, used in wires and pipes, may average $5,650 a metric ton, from $3,691 last year, the Melbourne-based bank's Gerard Burg and Jeff Oughton said in an April 26 report. That's 23 percent higher than their forecast in March. They also raised forecasts for zinc, lead, nickel and aluminium.

Metal producers are struggling to meet demand led by China amid declining stockpiles and mine stoppages, spurring a three- year rally in commodity prices as mutual and hedge fund managers sought better returns than stocks and bonds. Fund investments in commodities may exceed $120 billion by 2008, from $80 billion at the end of 2005, according to estimates from Barclays Plc.

"There is widespread demand for all base metal while stocks are low," Oughton, head of economics at National Australia Bank, said in a telephone interview on April 28. Oughton wrote the report with minerals and energy economist Burg, 25, who joined the bank last year. "There is continued speculation as there are supply disruptions and new supplies are modest."

National Australia Bank's base metals price index reached a record last month and is forecast to average 50 percent higher this year, driven by copper and zinc gains, Oughton and Burg said in the report. Copper has risen 63 percent this year amid rising demand led by China, fund buying and supply disruptions.

Copper, zinc

Copper for deliver in three months on the London Metal Exchange rose as much as $250, or 3.6 percent, to $7,240 a ton. It traded at $7,165 a ton at 12:51 p.m. Mumbai time. Copper reached a record $7,385 on April 26. Zinc prices have more than doubled in the past year as global demand outstripped supply.

The world economy is in "strong" shape, the Group of Seven said April 22. The world economy is on its surest footing since the start of the decade as growth in Japan and the euro region picks up, while the U.S. probably enjoyed the fastest quarterly expansion in more than two years. Growth in China, the biggest consumer of copper, zinc and aluminium, was 10.2 percent in the first quarter.

"Industrial production growth has increased strongly in early 2006, led by China and East Asia, although (it's) stronger than anticipated in the United States, Europe and Japan," the National Australia Bank report said. "The latter growth will support increased consumption of base metals in these regions, compared with the China and U.S. dominated growth of the past three years."

CRB index

Metals prices will mostly peak next year as bigger-than- expected investments from funds buoy prices, and investors should buy gold, zinc, uranium, platinum and aluminium, UBS AG said in a report April 28. Prices for metals such as copper and zinc may keep climbing as the rebounding economies of Japan and Germany further crimp supplies, Credit Suisse said April 20.

The Reuters Jefferies CRB Index of 19 commodities, which includes copper and nickel, has gained 12 percent in the past year, compared with the 8.9 percent gain in the Standard & Poor's 500 Index.

Zinc, used to galvanize steel, will average $2,775 a ton in 2006, compared with last year's $1,385, National Australia Bank said. Zinc averaged $2,431 a ton so far this year. Nickel, used in stainless steel, will average $14,947, from last year's $14,716 and has averaged $15,219.70 so far this year.

They forecast aluminium, used in beverage cans and aircraft, to average $2,550, compared with $1,900 last year. Prices of lead, used in batteries, will likely average $1,230 a ton, a 26 percent gain from 2005.

Chile mine

Disruptions to metal supply remain a risk, with labor disputes a high possibility in 2006, the National Australia Bank report said. "A significant number of contracts are due for renewal this year, particularly affecting copper and aluminium producers in the Americas," it said.

Workers at Falconbridge Ltd.'s Lomas Bayas copper mine in Chile voted April 27 to strike after their Canadian employer rejected demands for a pay increase. Output has been lost during a month long stoppage at the La Caridad mine, owned by Grupo Mexico SA. First-quarter output was lower at Freeport-McMoRan Copper & Gold Inc.'s Grasberg mine because of lower-grade ore.

"Reduced copper production from major producers, as well as the potential for disrupted output from labor disputes, has shifted the market balance from surplus to a modest deficit," the National Australia bank report said.

Goldman Sachs

Copper production will fall short of consumption, Burg and Oughton said, changing their forecast from a surplus. The previous forecast anticipated a production surplus of about 290,000 tons. Production will fall short of consumption by 10,000 tons this year, Goldman Sachs Group Inc. said on April 12.

National Australia Bank's view contrasts with JPMorgan Chase & Co. strategists Jon Bergtheil and Anindya Mohinta , who expect the market to be oversupplied by 350,000 tons. Citigroup Inc., the world's biggest financial services company, also said supplies will surpass demand by 134,000 tons this year, rising to 346,000 tons in 2007.

Zinc mine output, which increased by 3.4 percent to 10 million tons in 2005, is expected to grow by another 3.5 percent this year. A deficit of almost 500,000 tons is forecast in 2006, the report said