A pair of brokerage firms were out this morning, adjusting their outlooks on a variety of commodities. Merrill Lynch lifted its long-term price forecasts on a number of metals; including nickel by 45%. The brokerage firm stated that that the capital expenditure required to build, and the operational spending to produce, continue to increase substantially across the industry compared to just 2 years ago. Merrill is now around 18% above consensus on aluminum, nickel, and iron ore. However, the company also said that higher long-term prices don't always mean higher margins for the metals and coal companies.
In addition, Merrill Lynch lifted its rating on Alcoa (AA), Alumina Ltd. (AWC), and Century Aluminum (CENX) to buy. The firm also boosted Southern Copper (PCU) from sell to neutral.
Meanwhile, Morgan Stanley boosted its long-term WTI oil price forecast to $65 per barrel from $55 per barrel, with it also raising estimates for 2007 and 2008 to $65 per barrel from $60. We believe that while the rate of change in pricing (around 20% in the last five years) is likely to slow, realizations should remain at high levels, it said. Energy companies look undervalued both in absolute terms and relative to wider equity markets, the broker added, lifting targets on a number of firms.
Checking in on early action this morning, October crude oil has slipped 13 cents to $74.95 per barrel and December gold futures have drifted $3.50 lower to $688 per ounce. Oil-related issues are struggling, as the AMEX Oil Services HOLDRS Trust has slipped 0.43%. Meanwhile, mining stocks are sitting on a minor gain, as the AMEX Gold BUGS Index (HUI) has added 0.05%.