Merrill Raises Copper, Zinc, Coal Price Forecast
March 1 (Bloomberg) -- Copper, zinc and thermal coal price forecasts were increased by Merrill Lynch & Co., the world's biggest securities firm by market value, because of increasing demand and investment funds driving prices higher.
Merrill raised its price forecasts for four base metals, including aluminum and nickel, and thermal coal by between 5 percent and 43 percent, analyst Vicky Binns said in a note today. It made its last price revision in December.
Copper, zinc and other metals rose to records this year, bolstered by economic growth in China that fueled demand for autos, homes and appliances. As much as $200 billion of fund money is invested in commodities, with $30 billion in base metals, Citigroup Inc. said in a Jan. 25 report.
``We, like everyone else in the market, have been caught out by the effect of money flowing into the commodity markets and therefore need to upgrade price forecasts,'' said Sydney- based Binns. Investment demand is being backed by rising consumption from developing countries like China, and developed economies in Europe and Japan, she said.
The price of copper, used in pipes and wires, may average $2 a pound in 2006, 21 percent higher than a previous forecast, Merrill said. The metal has averaged $4,856.60 a ton, or $2.20 a pound, this year on the London Metal Exchange.
``Demand has surprised on the upside in key Chinese and Indian markets,'' said Binns. ``This has combined with supply bottleneck at the smelters to switch our small surpluses in 2006 into small deficits.''
Zinc, Thermal Coal
Zinc, used to protect steel from corrosion, may average $1 a pound, 43 percent more than a previous forecast, Merrill said. That compares with the average price of $2154.2 a ton, or 97.7 cents a pound, this year.
The securities firm also raised its forecast for aluminum, used in cars and planes, by 5 percent to $1.05 a pound for 2006. Aluminum has averaged $2,417.50 a ton, or $1.1 a pound this year.
Merrill Lynch also raised its forecasts for annual thermal coal prices to $48 a ton, from $43 a ton, due to rising rates on the spot market. Thermal coal is used to generate electricity.
``We believe the risks are for higher prices, with coal seen as the preferred source of power in Asia and Europe and with cement production picking up in Japan,'' Binns said. ``Supply continues to experience delays, higher costs and unavailability of truck tyres.''
Zinifex Ltd. and Oxiana Ltd. are expected to be the biggest beneficiaries of higher prices, Merrill said.
The brokerage raised its earnings forecast for Zinifex, the world's second-largest zinc producer, for fiscal 2006 by 50 percent to A$743 million ($552 million).
Oxiana, an Australian copper producer, will likely post 2006 profit of A$298 million, 55 percent higher than earlier predicted, Merrill said.
Merrill Lynch also revised its profit estimates for BHP Billiton and Rio Tinto Group, the world's largest and third- largest mining companies. It raised its fiscal 2006 profit forecasts for BHP by 7 percent to $9.9 billion, and for Rio by 8 percent to $6.6 billion.