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POLL-Aluminium and zinc to shine in 2006
Wednesday 18 January 2006, 8:00am EST
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By Nick Trevethan

LONDON, Jan 18 (Reuters) - Aluminium and zinc will see strong price rises in 2006, lifted by firm demand, limited supply increases, falling stocks and a flood of fund money, a Reuters poll showed on Wednesday.

The 2006 poll of 29 analysts showed a sharp division in opinion, with views on copper prices ranging between $1.36

($2,998 a tonne) and $2.16/lb this year and 96 cents and $2.23

($4,916) in 2007.

"There is a battle going on. Analysts are polarised between the fundamentalists and trend-followers," ABN AMRO global commodity analyst Nick Moore said.

"And the message at the moment is it's all about the wall of money facing commodities. But those of us who are concerned about the fundamental picture are saying although there hasn't been a price collapse yet, it doesn't mean it won't occur."

ALUMINIUM, ZINC TO SOAR

Aluminium prices were expected to rise by 10 percent from 2005, when they gained 14 percent, according to the poll, while zinc was expected to shoot up by 26 percent having gained 52 percent in 2005.

The median forecast for London Metal Exchange cash aluminium prices in 2006 was 94.8 cents/lb versus an average price of 86.1 cents in 2005.

At 1230 GMT the price on the London Metal Exchange was $2,382 a tonne (107.5 cents).

For 2007 the median forecast was 85 cents/lb.

"During LME week (in 2005), zinc and aluminium emerged as the darlings of the complex for 2006 and that is already materialising in early 2006," Barclays Capital analyst Ingrid Sternby said.

Zinc has already touched an all-time high this year of $2,071.5 and aluminium a 17-year peak.

"Stocks across the LME metals are being drawn down to critical lows. Copper and lead are already there and aluminium and zinc are also nearing critical levels fast, especially zinc," she added.

The median forecast for cash zinc for 2006 was 79 cents/lb and 78.3 cents in 2007. The average price during 2005 was 62.7 cents ($1,366 a tonne). Zinc was quoted at $2,066 a tonne on Wednesday.

Zinc stocks in LME-bonded warehouses were 381,725 tonnes on Wednesday, equivalent to around 13 days of global consumption, versus 629,400 tonnes at the start of 2005.

"The fundamentals for these markets look very strong. After a weak year, demand is coming back very strongly. We will have low levels of stocks in zinc and aluminium so there are fundamental reasons for these prices," Adam Rowley, analyst at Macquarie said.

"Add to that commodity index money, and the sky is the limit."

But Angus MacMillan, minerals strategist at Bache Financial, sounded a note of caution: "I am not as convinced about aluminium's fundamentals as others seem to be. I don't see aluminium and zinc stocks approaching critical levels."

COPPER SPECULATION

Copper was seen at 170 cents/lb ($3,747 a tonne) in 2006 and 134.8 cents/lb in 2007 versus 2005's average of 167.1 cents. It was trading at $4,692 a tonne.

Copper has seen the lion's share of speculative buying with investment funds driving prices to a series of record highs, and while some saw a continuation in the trend, others wondered whether the bubble would burst.

"An unprecedented amount of new fund money has been attracted to the LME by virtue of index buying (commodity indices) and structured products," UBS analyst Robin Bhar said.

"Many fund players...have long been involved in trading on the LME but the current wave of investment money is coming from previously untapped institutional investors such as pension and mutual funds," he said.

Maqsood Ahmed, analyst at Calyon Corporate and Investment, said: "The funds are into metals now so this weight of money could keep prices high. But eventually this bubble will burst and prices will fall, but in the current conditions it will take an external shock to break the bull run."

Lead was forecast at 42 cents in 2006 and 34.5 cents in 2007 against 44.3 in 2005, while tin's forecasts were 305 and 300 cents/lb.

Nickel was seen at 591.3 cents in 2006 and 544 cents in 2007 against 668.3 cents in 2005, but some analysts saw nickel prices rising.

"We think the nickel market will be tighter than many people expect. We see a substantial amount of project risk -- new technology, capital overruns and further delays -- leading to a longer period of supply deficit," Morgan Stanley analyst Wiktor Bielski said.

"We are also pretty bullish on consumption growth. We see it up 8.4 percent in 2007 because of China," he said.

China's Everbright Securities expected above=trend growth in global industrial production for two more years and both the U.S. and Chinese economies to remain healthy.

To see a full break down, Reuters subscribers can click on and .

(Additional reporting by Carole Vaporean and Zach Howard in New York, Lucy Horny in Shanghai and Jim Regan in Sydney)