Haywood Securities Wednesday lowered its forecasts for silver, palladium, platinum, rhodium, copper, lead, nickel, zinc and cobalt, molybdenum and uranium prices.
Mining analysts lowered their predictions for 2009 prices for silver from $14.50 per ounce to $13.50 per ounce, halved their forecasted palladium price from $400/oz to $200/oz, dropped projected platinum prices from $1,600 to $850/oz, and deeply slashed the expected rhodium price from the originally projected $6,000/oz to $1,000/oz.
The nickel price forecast declined from the originally projected $7/lb to $4.50/lb while projected cobalt price prediction dropped 50% from $30/oz to $15/lb. Tungsten price forecasts were dropped from $225 to $218/mtu while the spot uranium price prediction declined from $80/lb to $75/lb. The analysts halved their molybdenum price forecast from $17.50/lb to $15/lb.
In their analysis, Haywood noted that base metals prices were down 37% quarter over quarter during the fourth quarter of 2008. Metal prices seem oversold to us, but until demand stabilizes, we expect that they will remain so as negative sentiment persists, the analysts said.
Meanwhile, the analysts advised, Markets remain extremely volatile, and until some stability returns, we expect base metals prices will, at best, trade sideways for the short term. More base metals mine shutdowns are inevitable, they said, along with additional production curtailments.
The biggest question will be whether these expected supply reductions will be offset by the destruction of demand precipitated, Haywood analysts said. As a result, we remain cautious on base metals stocks in the near term, and suggest an underweight position. Over the longer term, we remain bullish on base metals prices, as many operations are currently losing money, and higher prices are needed to justify new mine development.
Along with the adjustments Haywood made to its base metals and precious metals assumptions, the analysts introduced a long-term uranium price deck. We believe we are the first to publish discrete spot and LT price decks, but believe this is a necessity at a time where the spread between LT and spot uranium prices far exceeds historical averages (currently US$17, vs historical average spread of ~US$5). We expect others to follow suit as this discrepancy persists.
The analysts noted, The underlying supply demand fundamentals for uranium remain strong, producers continue to downgrade production forecasts (e.g., Cameco), and new production continues to be delayed owing to technical, geopolitical, and financing issues. Demand growth remains steady, particularly where funded/supplemented by sovereign sources.
Nevertheless, Haywood advised that the market-wide liquidity crisis has led to a sell-off of uranium inventory from funds and a pronounced decrease in the spot price.
Haywood's analysis asserts that a significant discord between the spot and LT prices remains. A dichotomy persists where company valuations in the capital markets track closely with the spot price rather than the LT price.
Weak PGM Demand
In the near-term Haywood analysts anticipate weakening demand for platinum and palladium used in autocatalyst manufacture for gasoline-powered vehicles in North America and a strengthening demand for both metals in autocatalyst manufacture for diesel-powered vehicles mainly in Europe. We expect this scenario to provide more demand-side support for platinum than palladium, but anticipate a near-term waning in jewellery demand for platinum but strengthening demand for palladium.
Investment demand for both metals is anticipated to weaken, and industrial demand for both metals to strengthen, the analysts advised.
Haywood also expects an improvement in the South African platinum supply. In the near term, we anticipate a weakening of Russian, South African, and North American palladium supply, the analysts forecast.
Long-term metal price forecasts for rhodium were lowered by Haywood to $1,000 per ounce from the original long-term price forecast of $2,200/oz.