Echoes added to mining boom

ANALYSTS at Credit Suisse and JP Morgan have upgraded their price forecasts for some commodities by as much as 50 per cent, providing further support to the "stronger for longer" theory on the resources boom.

In a report published on Friday, Credit Suisse painted a rosy outlook for most major commodities, upping its price forecasts for 2008 and 2009 in the face of continuing strong demand.

And despite the strength of the Australian dollar - which can negatively impact miners who sell commodities in US dollars - Credit Suisse believes earnings from mining companies will continue to trend higher, leading to a re-rating of mining stocks.

The company believes Rio Tinto, the first Australian stock to pass the $100-per-share mark in a generation, could trade as high as $125 a share, while BHP Billiton shares could soar to $50.

Both companies have been the subject of speculation regarding mergers and acquisitions, the most recent involving aluminium giants Alcan and Alcoa.

Credit Suisse said most mining companies showed undergeared balance sheets, providing support for more takeover plays.

The company said corporate activity would remain a major support to mining sector valuations.

Coking coal received the biggest re-rating in Credit Suisse's latest global metals and mining report, the company raising its price forecast for 2008 by 49 per cent to $US115 a tonne, and its 2009 forecast by 75 per cent to $US110 a tonne.

Tight supplies and strong demand from China for resources for steelmaking also has Credit Suisse tipping a further rise in the iron ore price.

After a 9.5 per cent rise this year, Credit Suisse believes miners could push for an increase as high as 25 per cent in 2008.

"The current scenario reminisces that of 2004-05, when the market was clearly tight this early in the year," the company said. Iron ore prices rose a massive 71.5 per cent in April 2005.

Credit Suisse is also increasingly bullish on base metals, upping its price forecasts for 2008 for copper, lead and nickel by between 30 and 50 per cent.

The company said some copper projects due online in 2008 and 2009 had been delayed, postponing about 400,000 tonnes of extra capacity until 2010 at the earliest.

Delays in bringing on new projects is also likely to provide support to the nickel price, Credit Suisse said.

JP Morgan also raised its forecasts yesterday for base metals and platinum prices for 2007 and 2008.

It lowered its forecast for gold prices and kept silver unchanged. with REUTERS

source:news.com.au