zinc price upgrades for 2007 2008

Zinc, nickel price forecasts boosted
ANGELA BARNES , Globe and Mail Update




Two brokerage firms have hiked their zinc and nickel price forecasts substantially, in the face of robust metal demand, supply constraints and continued strength in metal prices. The changes promoted a round of profit-estimate and price-target revisions for a number of mining stocks.

RBC Dominion Securities Inc. boosted its zinc price forecast for 2007 to $2 (U.S.) a pound from $1.50 and to $1.85 from $1.40 for 2008. It adjusted forecasts for zinc in 2009 and 2010 to $1.75 from $1.30 and to $1.90 from $1.30, respectively.

RBC Dominion also increased its nickel price forecasts, going to $12.50 a pound from $10 for 2007 and to $12.50 from $6 for 2008.

While the RBC team led by Fraser Phillips said their analysis suggests that spot commodity prices, with the exception of uranium, have peaked, metal prices seem set to continue at historically high levels because of strong demand and supply constraints. “Despite our forecast of a modest slowdown in global economic growth in 2007 and some signs of softness in certain end-use markets, metal demand continues at very high levels,” the team said in a market comment this morning.

“At the same time, supply remains constrained by years of under-investment and production disruptions are exacerbating the problem,” they said. Furthermore, they added “inventories for all the metals are currently well below critical levels and are forecast to remain there throughout our forecast period.”

The upbeat report suggests that there will be opportunities for investors to outperform the overall market by investing in mining shares next year, though the analysts warn that investors will need to be more selective in 2007 than they were this year.

Analysts John Redstone and John Hughes of Desjardins Securities Inc. also picked up on the strong metal price theme and boosted their forecasts for zinc and nickel. They expect inventories of both metals “to be completely depleted by the end of 2007.” They said in a report that the metal market is relying on China becoming a net exporter of zinc and zinc alloy in order to reduce the gap between supply and demand next year. However, China has remained a net importer through the first 10 months of this year, they noted. They boosted their 2007 price projection for zinc to $1.80 a pound from $1.40.

As for nickel, they noted that world stainless steel production is expected to rise by more than four per cent next year, following a 14-per-cent-plus increase this year. Stainless steel production accounts for roughly 70 per cent of nickel end use. They accordingly raised their 2007 forecast for nickel to $13 a pound from $10.

RBC Dominion also made changes in its copper price forecast -- increasing the 2007 forecast, for example, to $3 a pound from $2.50. The team, which also raised its long-term price assumptions for copper, zinc and nickel, ranks zinc first in order of preference among the base metals, followed by nickel, copper and aluminum, in that order.