Mixed news for miners in wide-ranging forecasts
By Gillian O'Connor, Mining Correspondent, and Keith Fray, Statistical Researcher
Published: January 25 2001 20:17GMT | Last Updated: January 26 2001 15:27GMT
This year's Financial Times poll of metals analysts
contains mixed news for miners.
Average base metal prices for 2001 are expected to be
slightly higher than in 2000, although the improvement
will be smaller than predicted a year ago. However, the
poll does suggest further modest price rises in 2002.
Precious metals are expected to have another year of
contrasted fortunes: little change for depressed gold or silver, but even higher
prices for platinum and palladium, last year's stars.
In the past few days, several analysts have been revising base metal price
forecasts downwards, even though most forecasts were cautious. A year ago, the
last-minute revisions were all upwards. The contrast highlights the mood change
produced by increasing worries about the US economic slowdown, the factor now
dominating market thinking.
A few heroes are still arguing that the gloom has been overdone. Lawrence
Eagles of GNI, whose forecasts were at the top of the range, still hopes for a soft
landing in the US, although he acknowledged it was a tricky time to make
forecasts.
If the US picks up in the second half, and Europe and Asia remain strong, the
resulting global growth should mean strong demand for metals at a time when
stockpiles are low. Result: shortages and sharp price rallies.
Nick Moore, at JP Morgan, put forward a muted version of this argument. Mr Moore
has been reducing his 2001 forecasts gradually since May. Now, after the
immediate short sharp shock, he still sees "sunny uplands" beckonning.
"Over the next 12-18 months aluminium and copper inventories are going to
become very tight," he said. He would no longer predict other base metals would
also automatically be in deficit, but said producers could resort to production cuts
in the face of lower prices.
Two of the hardest base metals to predict are aluminium and nickel: in both, the
range of forecasts, even for the current year, is wide.
Adam Rowley of Macquarie kept his aluminium forecast virtually unchanged, while
those for most other base metals were substantially downgraded.
He argued that the power-price induced smelter cuts in the Pacific Northwest of
the US, now amounting to about 1m tonnes, would keep the metal in deficit in
2001. Most other analysts agreed and expected the majority of smelters to stay in
mothballs beyond this year.
But Matt Parry of the Economist Intelligence Unit based his forecast, one of the
lowest, partly on his expectation that many of these smelters would come back
into operation during the second half of this year.
Ted Arnold of Pru Bache described the Northwest power situation as "a wonderful
trading and talking point for the market", but considered it far outweighed by bear
points, notably the poor outlook for consumption growth.
Nickel, which has caused most of the analysts' grief for the past two years,
remains tricky. Its rise in 1999 and early 2000 was underestimated and many
analysts were wrong-footed by the speed of its subsequent collapse. The key
consideration is normally the stainless-steel market, the main end-customer,
which first boomed and then collapsed in short order.
JP Morgan's Mr Moore argued that nickel was in the worst position to weather the
economic maelstrom, because supply has risen sharply even as demand
collapsed. He expected the price to continue deteriorating in 2002.
Jim Lennon of Macquarie, by contrast, expects a bounce back in stainless-steel
production in 2002, taking the nickel price with it. So although he has just cut his
target for 2001, he has increased it for 2002.
Many analysts favour copper, dubbed the "new economy metal" by companies
such as Rio Tinto, because of its integral role in the wiring of computers.
Peter Hollands of Bloomsbury Minerals Economics, who specialises in this
metal, was in line with the consensus for this year, but topped the range for 2002.
He expected a relatively quick recovery from the US recession, with no big stock
rebuild while it lasts. He also noted the outlook was very different from that in
1999.
In that year, speculative buying in anticipation of a recovery - based on production
cuts - almost backfired as firmer prices allowed producers to keep putting off cuts.
This year, any speculative rally will not impinge on the real world, since cuts are
not in question.
Cominco's decision this week to increase zinc production cuts at its Trail smelter -
because selling the power was allegedly four times more profitable than
producing zinc - prompted Kamal Naqvi, of Macquarie, to upgrade his 2001 metal
price target from 47.5 cents to 49 cents a lb.
In precious metals, the real joker is palladium, used in autocatalysts and
dependent on the whims of Russian stockpile releases. Hence the wide range of
forecasts.
Hindsight: Last year's metal price movements caught most analysts on the hop.
Forecasts for most metals were pitched too high: those for copper, tin and gold
were between 4 and 8 per cent too high; those for zinc and silver about 10 per cent
too high, and those for lead more than 15 per cent. But nickel and platinum both
did better than expected. The consensus forecast for nickel was 7 per cent too low
and for platinum 25 per cent.
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