Gold & Silver Forum - S&P: Gold, copper and nickel price forecasts.

S&P: Gold, copper and nickel price forecasts
http://www.mineweb.net/pics/pen.gifBy: Dorothy Kosich
Posted: '21-AUG-06 09:01' GMT � Mineweb 1997-2006

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RENO, NV (Mineweb.com) --In their recently published U.S. metals and mining companies report card, Standard & Poor�s analysts said they expect gold to trade between $450 and $700 per ounce this year.

The analysts also predicted 12-month base case prices of $620/oz for gold, $6/lb. for nickel, and $2.25/lb. for copper.

Standard & Poor�s credit analyst Thomas Watters warned that, �although fundamentals remain sound for most metals, there exist some significant medium-term risks.� Among these risks are an unexpected drop in Chinese industrial production, and rapid investments flows in and out of metals by speculative investment funds, �which compound potential volatility and can seriously exacerbate short-term price declines.�

Other risks can include operating-cut inflation especially from higher energy costs, high currencies relative to the U.S., and scarcer materials and labor, according to S&P.

Meanwhile, Standard & Poor�s forecast that the �factors that fueled the escalation in gold prices likely will persist through 2006 and 2007, thereby underpinning prices. In the medium-to-long term, we remain positive about prices and industry fundamentals.�

Nevertheless, the analysts noted that gold production is declining as output drops from mature mines in Australia, North America and South Africa. �There are too few projects that could reverse the expected decline in production because permitting and building new mines usually takes several years,� they added.

�The fundamental strength of base metals is expected to persist for at least the next several quarters as demand remains solid and supplies continue to decline to critical levels,� said Standard & Poor�s. Nevertheless, the analysts added, this will be tempered by higher spending to replenish reserves, increased production, enhancing efficiency, and rewarding shareholders.

�The event risks associated with large-scale M&A activity add a dimension of complexity that will likely constrain further upward pressure on rating,� according to the analysts.

Standard & Poor�s said it is using �relatively conservative copper prices� of $2.25 per pound for this year, $1.70/lb. for 2007, $1.40/lb. for 2008 and $1.10/lb for 2009.

S&P anticipates that the tight nickel supply-demand balance will continue through next year. The analysts� 12-month base-case price for nickel is $6 per pound. The analysts concluded that the �price outlook for nickel through 2007 remains favorable, assuming continued strength in Asian demand, although some concern exists about the potential for a decline in demand, as marginal stainless steel capacity shifts to lower nickel-containing grades to protect against exceptionally high prices.�

Voisey�s Bay will continue its ramp up this year, and BHP Billiton�s Ravensthorpe project and Inco�s Goro project are expected to begin production in late 2007. However, the analysts cautioned that both Ravensthorpe and Goro �are facing markedly higher capital costs and potential delays in achieving commercial production, thereby maintaining the tight supply-demand balance in nickel through 2007.�

Standard & Poor�s analysts said intermediate-term fundamentals for coal �look good, despite recent weaknesses. �Despite recent weaknesses, good omens for intermediate-term fundamentals are the announcement of a significant amount of coal-fired electric generation capacity, a lack of economically feasible substitute fuels, and long lead times to bring on new coal production capacity.�

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