UBS Sharply Increases Metals 2006-07 Price Forecasts
LONDON (Dow Jones)--UBS has sharply upped 2006-07 base and precious metals forecasts, reflecting stronger than expected investor inflows and "anemic" supply response, with cash copper prices now forecast to average 264.7 cents a pound, up 35% on UBS' January forecast.
This equates to $5,836 a metric ton, while copper for three-month delivery is currently trading at $7,165/ton on the London Metal Exchange.
A Man A Woman
A Man A Woman
For 2007, UBS forecasts cash copper prices to average 265.0c/lb, or $5,842/ton, up 71% on the previous outlook, given "the increased capital flows moving into commodities markets and our expectation of sluggish supply response to high prices given the cost and risk challenges facing project developers.
"Fund flows into commodities as an asset class has been more vigorous than anticipated, driven by strong underlying fundamentals supported by a broad questioning of the value of the US dollar," UBS said.
On the supply side, weather-related difficulties in Australia cut Rio Tinto PLC (RTP) first quarter production figures, while strikes impacted copper output and political unrest temporarily halted Inco Ltd.'s (N) Goro project in New Caledonia.
Meantime, low grades have resulted in lower expectations for output from the giant copper-gold Grasberg mine in Indonesia, UBS said.
For cash aluminum, UBS predicts prices to average at 126.2c/lb, or $2,784/ton, and 127.5c/lb for 2007, or $2,812/ton. LME three-month aluminum is currently trading at $2,781.50/ton.
"We believe that the recovery in aluminum prices has been largely a function of continued fund flows into the commodity asset class, bolstered by firm global demand prospects and the growing possibility of supply disruptions later this year," UBS said.
Cash zinc prices, up nearly 80% since the beginning of the year on the LME, are seen at 165.4c/lb, or $3,649/ton for 2006, up 65% on the January forecast and at 185c/lb or $4,081/ton for 2007, up 95% on the previous outlook.
"Improving fundamentals are no better reflected than in the highly visible inventory levels on the LME. Inventories of refined zinc in LME warehouses currently total 266,000 tons compared with 394,000 tons at the end of 2005," UBS said. Around two-thirds of these stocks are held in LME warehouses in New Orleans, which were damaged in the wake of Hurricane Katrina, UBS added.
The cash nickel forecast is up 15% at 761.2c/lb, or $16,794/ton for 2006 and up 40% for 2007 on the previous forecast at 765c/lb, or $16,878/ton.
Base metal forecasts LME cash, in cents a pound.
2006 2007
Copper 246.7 265.0
Aluminum 126.2 127.5
Nickel 761.2 765.0
Zinc 165.4 185.0
Lead 59.0 57.3
Precious metals, in dollars an ounce.
2006 2007
Gold 630 750
Silver 13.42 15.00
Platinum 1,100 1,200
Palladium 350 420
AI
