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Gold/Mining/Energy : Mining News of Note -- Ignore unavailable to you. Want to Upgrade?

To: LoneClone who wrote (33850)	3/9/2009 6:07:57 PM
From: LoneClone	Read Replies (1) \| Respond to of 193133

Copper's wing and prayer Among industrial metals, copper remains a "key outlier", says RBCCM; the copper price has yet to drop below the 95th percentile of the cash cost curve. Author: Barry Sergeant Posted: Friday , 06 Mar 2009 JOHANNESBURG - mineweb.com Even at current copper prices, all but a few of the highest cost producers in the world continue to generate positive cash flow, according to a major report from analysts at Royal Bank of Canada Capital Markets. The aluminium and nickel industries are seen as remaining under the most pressure "with spot prices sitting at the 25th and 65th percentiles of our estimated 2009 cash cost curves, respectively. The position of current aluminium and nickel prices relative to the cost curves is not sustainable". However, for copper, if demand remains weak, and inventories continue the upward trend despite recent declines, RBCCM's marginal cost analysis points to significant downside price risk from current levels. RBCCM has made only modest changes to its copper price forecast; its forecast surplus in 2009 is reduced somewhat from a quarter ago, as a lower demand forecast is offset by additional supply cuts. At the same time, the lower demand forecast made by RBCCM analysts now results in a modest surplus again in 2010 versus a small deficit this past quarter. The analysts continue to forecast "a return to deficits in 2011 and beyond". But with inventories forecast to remain well above critical levels, RBCCM analysts have reduced price forecasts modestly in both 2011 and 2012. The 2009 and 2010 forecasts remain unchanged at USD 1.65/lb and USD 1.75/lb, respectively, with an increase to USD 2.00 in 2011 and 2012. In 2013, with inventories approaching "critical levels" prices are expected to increase further to USD 2.25/lb. The long-term price forecast remains USD 1.50/lb in 2009 USD terms. In spot markets, the copper price spiked briefly above USD 4.00/lb in mid-2008, before crashing to USD 1.28/lb late in 2008. The price has since recovered to levels nearing USD 1.70/lb. Looking at broader markets, RBCCM analysts say that a significant rebound in commodity prices is not likely before the second half of 2010. Commodity prices may, however, "rebound from lows over the next 12 months as the economic outlook stabilizes and begins to improve". But significant sustained increases in commodity prices will likely not occur "until excess inventory has been eliminated and idled capacity is restarted". The analysts say that global demand has collapsed and is expected to remain weak until the second half of 2009 "at the earliest". The underlying fundamentals in the developed world "are bleak and look set to remain so for some time". At the same time, an ongoing recovery in China's PMI, as seen this week, has led to optimism that the worst might be over for the Chinese economy. The analysts add that "stimulus and infrastructure spending in China should ultimately lead to a strong rebound in domestic demand, but without a recovery in the developed world, global commodity demand growth will likely be anemic at best". Where the slide in commodity prices has pushed individual miners below the marginal cost of production, production cuts have been significant. While these widespread mining production cuts may have stopped the slide in prices, copper may be an exception, given that the majority of miners continue to make profits. Inventories are well above critical levels and are forecast to continue to rise. Recent declines in LME inventories, as seen this week for the first time since September 2008, have given rise to optimism and a rally in prices. Analysts at RBCCM believe, however, that "it is too early to conclude that the markets are moving back into a sustained deficit". Again, "a bear market rally is possible in the near-term". The RBCCM analysts say that continuing declines in LME inventories, "particularly copper, could drive a rally in metal and share prices over the next month". Overall, the analysts anticipate that non-precious metal mining shares underperforming in 2009: "We do not believe that sustained outperformance of mining shares is possible until global economic prospects improve and excess inventory and capacity has been eliminated". Weak commodity markets "will keep balance sheets under pressure, and the credit crisis has severely limited the options for refinancing". See link above for table