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Strategies & Market Trends : Strictly: Drilling II -- Ignore unavailable to you. Want to Upgrade?

To: Frank Pembleton who wrote (17980)	8/28/2002 8:12:42 AM
From: Frank Pembleton	Read Replies (1) \| Respond to of 36161

JP Morgan says base metal production cuts needed Stephen Bell -- 07 August 2002 LEADING stockbroker JP Morgan says base metal miners need to bite the bullet and cut output to avoid another price meltdown. A note this week by JP Morgan's London-based analyst Nick Moore says metal markets need fresh cutbacks, "not reactivation and new projects". "Producers need to show their mettle, as the ball is in their court," the broker said. Those conclusions will not make happy reading for leading Australian diversified miners BHP Billiton, WMC and Rio Tinto, which have already seen their share prices slashed in recent months by the uncertain outlook for demand going forward. JP Morgan reckons the long-held hope of a consumer-led recovery in metal demand is proving illusory for the major mining houses. "Certainly the consumer seems to have gone to ground and as a result the crescendo of the drumming of the hooves of the cavalry of demand riding to the rescue has unfortunately become a diminuendo," Moore said. Given that fragile scenario, further production cuts are essential to balance up the market, the broker argues. Even before the latest economic worries, most of the commodity markets faced surplus markets, it says. "As such it is clear that commodity markets robbed of the oxygen of demand growth need immediate and significant supply side redress." The broker points to the example of aluminium, which has a forecast 900,000 tonne market surplus in 2002, compounding the 610,000t surplus in 2001. "Urgent cutbacks are clearly required," it said. "Although obvious candidates for closure are elusive (some producers have already 'done their fair share'), in our opinion more cuts are necessary." "If none are forthcoming, then the price will have to be the grim reaper, sliding lower until industry capitulation is achieved." The broker points out that metal prices (based on the JP Morgan Base Metal Price Index) are now just 7% above their cyclic lows hit on November 7 last year. Lead, palladium and tin have already sunk below their levels reached on that date, while zinc and aluminium are within a whisker of doing so. The base metal price woes have already spelt corporate agony for several Australian companies, including Pasminco (zinc), Western Metals (zinc) and, more recently, Murchison United (tin). The latter is now dependent on the support of Westpac after the proposed sale of its Renison Bell tin mine was cancelled when a Portuguese copper deal fell through. But another Perth-based junior, debt burdened Anaconda Nickel, can take some comfort from the JP Morgan numbers. The report reveals nickel to be the best performing metal over the past nine months, having gained 44% from the November 7 nadir.