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Gold/Mining/Energy : Copper - analysis -- Ignore unavailable to you. Want to Upgrade?

To: Stephen O who wrote (1525)	12/19/2006 10:55:17 AM
From: Stephen O	Read Replies (1) \| Respond to of 2131

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).