resources are back. fn arena synopsis today., page-7

Nickel and stock price forecasts raised by Desjardins
While a major decline in the Chinese Stock Market on Tuesday put pressure on metal prices given the country’s huge consumption, Beijing is likely trying to slow down its economy, not halt it altogether.

As a result, many continue to expect that demand for metals will have no difficulty outstripping supply in the near term.

One commodity where this appears to hold true is for nickel.

Strong growth forecasts for stainless steel production in China and expectations that demand for nickel will outstrip supply through 2008, has led Desjardins Securities to raise its average price forecast on the metal to US$16 per pound in 2007 and 2008, from US$13.

Nickel prices renewed their upward momentum in September 2006 and consumers appear to be trying to reduce their consumption, the firm’s analyst John Redstone said in a research note.

However, he added that many of the demand factors that serve to moderate prices, such as higher levels of scrap metal, have failed to materialize. Global stainless steel production also appears to be increasing.

Mr. Redstone’s expects that a limited amount of nickel supply will come from conventional mines in the next four years and there appears to be “no spare metal available to the market to bridge the supply-demand gap.”

As a result of these expectations, Mr. Redstone has raised his earnings forecasts and target prices for several stocks.

He reiterated his “buy” recommendation on LionOre Mining International Ltd. (LIM/TSX) shares, while hiking his price target to $22 from $17, which represents upside of nearly 30%.

Rio Narcea Gold Mines Ltd. (RNG/TSX) is expected to rise roughly 34% to $5.20, versus $3.55 previously. Mr. Redstone also moved his rating on the stock to “buy” from “hold.”

He also boosted his price target on Sherritt International Corp. (S/TSX) shares to $19.15 from $14.05, representing upside of 25%.

While nickel prices at the London Metals Exchange have risen significantly so far this year, Mr. Redstone does not think market fundamentals will bring prices back to their historical averages any time soon.

Jonathan Ratner
[email protected]