Copper, Nickel and Zinc Have `Favorable' Outlook, Moody's Says
2006-12-19 03:35 (New York)
By Chanyaporn Chanjaroen
Dec. 19 (Bloomberg) -- Copper, zinc and nickel have
``favorable'' outlooks for next year because Chinese demand will
keep prices above historical averages, according to Moody's
Investors Service.
``Strong'' Chinese demand will help offset a U.S. economic
slowdown and supplies will continue to be constrained by a lack
of ``meaningful'' new production capacity, Moody's said in a
report today. Copper, zinc and nickel have traded at records in
2006 as demand exceeded production.
``Global demand for copper is healthy and supply will
remain tight, keeping stockpiles low compared to historic
averages,'' analysts Terry Marshall in Toronto and New York-
based Carol Cowan wrote in the Moody's report.
A five-year rally in metals has boosted profits at mining
companies and fueled a record amount of mergers and acquisitions
in the metals industry. Xstrata Plc spent $17 billion in cash to
take control of Canadian nickel producer Falconbridge Ltd. this
year. Brazil's Cia. Vale do Rio Doce bought Inco Ltd., the
world's second-biggest nickel producer, for $17.4 billion.
Mergers and acquisitions will contribute to a ``healthier
performance'' at mining and metals companies, the analysts said.
Companies should try to pay debt while commodity markets are
strong, the ratings company said.
Still, metals prices will decline from this year's all-time
highs because of weakening demand from the U.S., Marshall and
Cowan wrote. Moody's also said investment funds are a ``threat''
to prices because of their increased holdings.
Fund Withdrawal?
``A significant withdrawal of funds from any or all of the
metals could result in a significant drop in price,'' the
analysts wrote.
Aluminum producers including Alcoa Inc. and Alcan Inc., the
world's two largest, are unlikely to have their debt upgraded as
production of the lightweight metal exceeds demand in 2007,
Moody's said. New York-based Alcoa is rated ``A2'' by Moody's,
five steps below the highest investment grade. Montreal-based
Alcan is rated ``Baa1,'' seven steps below the highest
investment grade.
``While aluminum prices evidenced strong upward movement in
2006, this has not translated into significant market
improvement given weakness in downstream operations and ongoing
cost pressures,'' Marshall and Cowan wrote.
Moody's expects next year's aluminum prices to track within
2006 levels. Aluminum for delivery in three months on the LME
has averaged $2,588 a ton this year, trading at an all-time high
of $3,330 a ton May 11.
--Editor: Casey (jwc). |
