From Nesbitt Burns on Base Metals:
Recently, we have been taking notice of the improved outlook on some base
> metal prices. Comments from a number of analysts have been positve.
Today
> our metals analysts released their increased price estimates as shown in
the
> following comment:
>
>
>
> Market Notes - BASE METAL COMMENT - improving outlook - the group
continues
> to benefit from the
>
> encouraging economic environment, the fairly good tone to pricing along
with
> renewed investor interest in the cyclicals. Leading the way has been
nickel
> with pricing up around 22% over the past few months. The key risk to the
> nickel call is what Russia (i.e. largest producer) would do and to date
they
> have not been putting additional supply on the market. The better
discipline
> from producers is not specific to nickel as the copper producers have been
> curtailing production, which has lifted prices. Against this backdrop, we
> have increased our 2002 price forecast for nickel and copper to $2.68 (up
> 14%) and $0.71 (up 7.6%). We have also taken up our forecasts on aluminum,
> zinc and lead but the increases are more modest. In addition, the better
> pricing environment is expected to continue into 2003, which bodes well
for
> the group. Victor Lazarovici has made 10 ratings changes (6 up, 4 down) to
> realign the group following the gains made by the various stocks. All in,
> the downgrades should not be viewed as negative because the trend in the
> metals is up. Some stocks just got ahead of themselves. The notable
upgrades
> include Inco (N), Falconbridge (FL), Noranda (NRD) and Alcoa (AA -N),
while
> the key downgrade in the Canadian stocks was Teck Cominco (TEK.B) which is
> now Market Perform.
>
> The company that we like right now is Inco (N on T).
>
> Here's the thesis:
>
> - Metal analysts are predicting an upturn in the underlying commodity
price
> of nickle... every 50 cent move in the commodity will have an impact to
Inco
> share prices.
>
> - the best way to play nickle in the Canadian market is Inco
>
> - If you believe that the global economy will be better in 2002 than in
> 2001, commodity prices (including nickle) should improve. Nickle
> inventories are currently low.
>
> - To achieve exposure, you can purchase Inco shares; a more levered
exposure
> can achieved through Inco warrants that also trade on the Toronto
exchange.
> They have a long expiration date (2006) with a strike price of $30 Cdn.
The
> warrants would be considered a more aggressive position than the stock
> because of the leverage to the underlying share price and their
considerably
> lower liquidity. |
