MELBOURNE -
The booming Chinese economy is driving a structural
change in the commodities market that will leave
prices at high levels for years and continue to
drive bumper profits for miners, according to a
report by the investment bank GoldmanSachs JBWere
(GSJBW).
In the report, GSJBW upgraded its
long-term commodity-price forecasts by between 20%
and 30%. GSJBW resource analysts have firmly
backed the so-called BRICs story, which holds that
rapid growth and industrialization in Brazil,
Russia, India and China has permanently bumped
prices to a new level.
"We believe we are
witnessing a structural shift in commodity prices
and demand growth and [that] this provides a supernormal
profit environment for
incumbent producers and valuable growth options,"
the report said.
Taking into account
future production and predicted demand, GSJBW has
hiked its long-term forecast for the price of
copper by 29%, iron ore by 21%, zinc by 37% and
oil by 33%. The analysts also boosted the
investment bank's short-term forecasts for
commodities across the board.
Gold is now
forecast to trade between US$630 and $850 an
ounce, with a bias to the upside, after a previous
forecast range of $550-$700 was overtaken by the
actual price.
GSJBW also believes
Australia's major iron-ore producers will win 15%
increases in this year's negotiations with Asian
steelmakers, up from an earlier forecast of a 10%
rise. GSJBW then expects contract iron-ore prices
to be flat next year and drop 10% the year after
that.
Following on from its bullish
forecasts, GSJBW also boosted profit forecasts for
Australia's miners. It has lifted its earnings per
share (EPS) forecasts for BHP Billiton by 4% for
2005-06, 19% for 2006-07 and 7% for 2007-08.
GSJBW now expects the world's biggest
miner to register an Australian record net profit
in 2005-06 of US$10.7 billion (A$13.84 billion),
followed by a mammoth US$11.4 billion in 2006-07
and US$10.2 billion in 2007-08.
Rio
Tinto's EPS forecasts are up 13% in 2006, 19% in
2007 and 13% in 2008. GSJBW is expecting the miner
to post a net profit of US$7.1 billion in 2006,
US$6.3 billion in 2007 and US$6 billion in 2008.
The report noted that suppliers of
commodities have been struggling to keep pace with
soaring demand growth. "In many commodities,
operations are running at 100% of capacity, and
the incidence of companies failing to meet their
production targets is rising," it said.
At
the same time, the quality of projects being
developed had weakened, especially in base metals.
"Today's potential projects are typically smaller
and lower in grade than those of 10 years ago,"
the report said. Costs for producers were
continuing to rise and, with much of the increase
structural, looked set to stay high, it added.
