Haywood ups precious metals forecasts, anticipates strength in base metals

Haywood Securities has adjusted target and commodity price forecasts upward, citing demand in both precious and base metals.

Author: Dorothy Kosich
Posted: Friday , 12 Feb 2010

RENO, NV -

Despite a significant correction in metals prices in recent weeks, Canada's Haywood Securities remains so bullish on gold and silver, it has readjusted its precious metals forecasts upward.

Haywood metals analysts increased their 2010 forecasts from $1,000 per ounce to $1,120/oz for gold, and from $15.25/oz to $17.75/oz for silver. Long-term forecasts for gold were increased from $825/oz to $850/oz while silver was upped from $12.75/oz to $13.50/oz.

"New projects in our opinion require at least US$850 per ounce for gold to generate a reasonable return on investment, and with diminishing mine lives at existing operations, declining global production, and declining ore grades, we expect gold will be well supported at the US$850-per-ounce level," they added.

In the meantime, Haywood has "adjusted our price deck to reflect the impressive rebound in base metals prices as well as improving fundamentals going forward," the analysts noted. "We expect strength in all the base metals over the next 1 to 3 years as the economic recovery leads to increased demand-likely in excess of existing production capacity."

Haywood also anticipates platinum prices to head higher through 2010 to $1,550 per ounce and to $1,800/oz in 2011. ‘Healthy supply and demand fundamentals are expected to support platinum investment demand this year, as long-term investors purchase the metal in anticipation of a revival of industrial demand later in 2010."

Meanwhile, the analysts predict that palladium's price is expected to rise sharply throughout this year. Haywood forecasts a $450/oz price for this year and $550/0z for 2011. "We have also increased our long-term palladium price forecast to US$450 per ounce, which now commences in 2017 (from US$200 per ounce commencing in 2013 previously)."

Haywood adjusted its rhodium price forecast from $1,650/oz to $3,200/oz this year and from $1,000/oz to $4,500/oz in 2011. The long-term rhodium price was increased from $1,200 oz. to $3,000 oz, which now commences in 2017.

BASE METALS FORECASTS

Among the base metals, Haywood analysts prefer copper "given the lack of new supply, long lead time to bring on additional capacity, and general producer discipline."

"Zinc and lead would be our next preference, and nickel would be our least favourite metal at this point," they advised.

Although China was the only source of increased copper demand last year, improving economic activity is expected to lead to growth in global copper demand through 2010. "In the short term, we expect copper prices to remain near current levels, and have forecast a 2010E copper price of US$3.05 per pound," the analysts forecast.

Haywood maintains a bullish outlook over the longer term, and believes the U.S.-driven sentiment for a weakening copper market will be overshadowed by global development in China, India and other emerging economies over the next two to three years. The analysts suggested copper is likely to be in a small deficit this year and next, with the market moving back into surplus in 2012.

"We are forecasting a decline in copper prices after 2011, reaching as long-term estimate of US$2.25 per pound in +2014 as new mine production comes on line," they predicted. "However, we continue to believe future mine production will depend largely on lower grade mines, which will redefine the industry's coal regime."

In their analysis, Haywood noted the zinc price increased 114% last year, ending the year at US$1.15/lb, "a price at which many marginal Chinese producers are profitable."

"In the short term, we expect zinc prices to remain near current levels, and have forecast a 2010E zinc price of US$0.95 per pound, followed by uS$1.05 per pound zinc price in 2011, and US$1.10 per pound zinc price in 2012," the analysts predicted. "We are forecasting that zinc prices will decline after 2012, reaching our long-term forecast of US$0.95 per pound in +2014."

Meanwhile, Haywood noted the lead market should be roughly balanced this year, with a deficit in 2011 as lead demand continues to grow in China. "We are forecasting a 2010E lead price of US$0.95 per pound. We also expect the lead price to increase to US$1.10 per pound by 2012, then decline to our long-term forecast of US$0.95 per pound in +2014."

The analysts also forecast that nickel prices will decline to US$7.75/lb in 2011, and reach Haywood's long-term forecast of US$7.50/lb in +2012. "Our biggest concern with the nickel market is the number of new mines under construction...that will collectively add another +250,000 tonnes of nickel in a 1.3 million-tonne-per-year market, which has historically has grown 5% to 7% annually."

Haywood suggests Chinese pig iron will continued to keep the market saturated. Meanwhile technology continues to lower the amount of nickel used in stainless steel. The analysts also note the Vale strike in Sudbury and Voisey's Bay will also get settled, "which will further exacerbate current inventory levels globally."

The analysts anticipate growing demand fundamentals will dominate the molybdenum market, "noting that the current list of greenfields projects lacks a significant number of large-scale ventures to potentially fill the expected supply deficit."

"Year to date, molybdenum has averaged US$14.25 per pound, in line with our 2010E forecast price of US$15.00 per pound," they added. "We expect that molybdenum prices will increase to US$20.00 per pound in 2011, declining to a long-term estimate of US$15.00 per pound in +2013."

In the meantime, Haywood remains positive on its outlook for the uranium sector, "Particularly given the mid- to long-term supply/demand fundamentals driven by diversity in demand growth, but only stilted primary supply addition."

The analysts expect a number of near-term catalysts "that will provide greater stimulus on the spot price through changes in government policy, renewed investment appetite, lower production at large mines, as well as tangible delays in commercial production from new projects."