Zinc resistance at $3,500 is futile with this level looking to be taken out easily leaving $4,000/t a not unrealistic possibility with no end in site of continuing stockpile depletion,down yet another 1,125t to 251,675t.
There are distinct signs that these metals are now being re-rated for the short to medium term espc if China holds to its promise of new strategic stockpiles. ----------------------------------------------
Commodity boom built on solid ground
By Alex Wilson
May 12, 2006
THE booming Chinese economy is driving a "step change" in the commodities market that will leave prices at high levels for years and continue to generate bumper profits for miners, a new report says.
In a report released yesterday investment bank Goldman Sachs JBWere upgraded its long-term commodity price forecasts by between 20 and 30 per cent.
Its resource analysts have firmly backed the so-called BRICs story, which holds that rapid growth and industrialisation in Brazil, Russia, India and China has ratcheted prices to a new level.
"We believe we are witnessing a structural shift in commodity prices and demand growth and this provides a super normal profit environment for incumbent producers and valuable growth options," the report said.
Taking into account future production and predicted demand, Goldman Sachs has raised its long-term forecast for the price of copper by 29 per cent, iron ore by 21 per cent, zinc by 37 per cent and oil by 33 per cent.
The analysts also boosted the group's short-term forecasts for commodities across the board.
Gold is now forecast to trade between $US630 and $US850 an ounce, with a bias to the upside, after a previous forecast range of $US550 to $US700 was overtaken by the actual price.
Goldman also believes Australia's major iron ore producers will win 15 per cent increases in this year's negotiations with Asian steel makers, up from an earlier forecast of a 10 per cent rise.
It then expects contract iron ore prices to be flat next year and drop 10 per cent the following year.
Following on from its bullish forecasts, Goldman also boosted profit forecast for Australia's heavyweight miners.
It has lifted its earnings per share (EPS) forecasts for BHP Billiton by 4 per cent for 2005-06, by 19 per cent for 2006-07 and by 7 per cent for 2007-08.
It now expects BHP to register an Australian record net profit in 2005-06 of $US10.7 billion ($13.84 billion), followed by $US11.4 billion in 2006-07 and $US10.2 billion in 2007-08.
Rio Tinto's EPS forecasts are up 13 per cent in 2006, 19 per cent in 2007 and 13 per cent in 2008.
Goldman is expecting the miner to post a net profit of $US7.1 billion ($9.19 billion) in 2006, $US6.3 billion in 2007 and $US6 billion in 2008.
The report said suppliers of commodities had been struggling to keep pace with soaring demand.
"In many commodities, operations are running at 100 per cent of capacity, and the incidence of companies failing to meet their production targets is rising," it said.
At the same time the quality of projects being developed had weakened, especially in base metals.
"Today's potential projects are typically smaller and lower in grade than those of 10 years ago," the report said.
Costs for producers were continuing to rise and, with much of the increase structural, looked set to stay high, the report said.
Grupo Mexico says zinc mine to be closed in next 2 weeks
Source: Dow Jones
Mexican mining and railroad company Grupo Mexico SA said Thursday its planned closure of the San Martin zinc mine in Zacatecas state will be carried out in the next two weeks.
In a filing with the Mexican Stock Exchange, Grupo Mexico confirmed its decision to close the mine, where workers have been on strike since the end of February.
Grupo Mexico said although it signed a contract revision on March 27, "a minority and violent group" of workers are keeping the facility shut, while state authorities have taken no action to restore access.
Federal labor authorities have declared the strike illegal.
Grupo Mexico said the mine, which produces about 1,400 metric tons of zinc concentrate a month, as well as some lead, copper and silver, contributes $12 million a year to operating cash flow and $6 million to net profit.
"The mine could reopen in coming years to exploit its 10 years of reserves when the right legal conditions exist," the company said.
Grupo Mexico reported net profit of $331 million in the first quarter of this year, and earnings before interest, taxes, depreciation and amortization, or Ebitda, of $759.2 million.
It's one of the world's biggest copper producers, with annual output around 700,000 metric tons. Last year, Grupo Mexico produced 144,000 metric tons of zinc.
A strike is also continuing at Mexico's second-largest copper mine, La Caridad, which began March 24. The strikes prompted the company last month to declare force majeure on some May deliveries of molybdenum, copper and refined zinc.
d.
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