Canada's Haywood Securities Monday lowered its gold forecast this year to US$940 an ounce from US$975, implying a second-half average of $970/ounce.

Although Haywood raised its 2008 gold assumption in April, the analysts admitted, "We failed to consider the psychological impact of the Federal Reserve Bank's engineered bailout of Bears Sterns, and like clockwork, the market refocused on gold seasonal weakness."

"Since we cannot predict when and what the next catalyst will be to propel gold above US$1,000 per ounce, we have tempered our 2008 gold forecast to US$940 from US$975 per ounce, implying an H2/08 average of US$970 per ounce. Our medium to long-term gold price forecasts remain unchanged," the Haywood Mining Team wrote.

Haywood also moderated its 2008 price assumption for silver from US$18.50/oz to US$17.50/oz, leaving medium to long-term silver price forecasts unchanged.

Meanwhile, Haywood forecasts that a global economic slowdown now underway is expected to cause a softening of demand for industrial metals, including PGMs. "Volatility in stock markets is also expected to lead to metal price volatility prompted by investors moving into precious metals including PGMs as speculative investment."

"The ongoing 7-year super cycle in commodities has resulted in global mining costs escalations, as is evident from the continued upward revision of initial capital-cost estimates for development stage projects. Input costs across the board, including labour, materials (steel), fuel (oil), power and reagents have all risen to record highs."

COPPER

"We expect that cost escalations coupled with supply disruptions and decreasing copper grades in South American deposits will support strong medium-term copper pricing. Our revised formal commodity price forecast includes a copper price of $3.80 per pound in 2008 (from US$3.35 per pound) US$3.50 per pound in 2009 and 2010 (from US$3.15 and US$3 per pound respectively, and US$3.00 per pound in 2011 and 2012 (from US$2.50 and US$2.25 per pound respectively."

Over the long term, Haywood maintain its bullish outlook, believing that U.S,-driven sentiment "for a weakening copper market will be overshadowed by global demand growth over the next 2 to 3 years, specifically from China and India."

"We are forecasting a gradual decline to our long-term copper forecast (2013+) of US$2.50 per pound and believe future mine production will depend largely on lower grade mines, which will redefine the cost regime-‘long gone' are the days of copper production costs of sub US$0.50 per pound associated with high-grade, open-pit heap-leach operations in South America.

NICKEL

Haywood believes the current nickel price "has very little downside. As the current low nickel spot price combined with increased pig iron production costs force producers out of business, short-term strength should return, driving out 2008 forecast of US$12 per pound."

While nickel demand continues to grow at a slower rate in China, the rest of demand from the developed world "remains essentially flat," according to the analysts.

"The ramp-up in nickel pig iron production and its impact on nickel pricing has occurred faster than we expected. As a result, we are slightly lowering our nickel price forecasts for 2008 to US$12 per pound from our previous estimate of US$12.50 per pound. Between 2009 and 2011, we have left our price deck unchanged at US$12, US$11, and US$9 per pound respectively, dropping to a long-term price of US$8 per pound by 2012."

ZINC

Haywood noted that the zinc price is below the US$1 per pound level for the first time in three years due to oversupply, which is expected to persist through 2008 and 2009.

"A subsequent reversal is expected during 2010 to 2012, as (1) a number of large zinc mines approach closure or face lower grades (e.g. Brunswick, Antamina, etc.) and (2) the market experiences supply constraint fuelled by a lack of significant new and/or expansion zinc projects in the global pipeline. Additionally, current zinc price weakness threatens (1) potential mine closures and (2) delayed new mine start-ups," the analysis said.

However, Haywood noted that Brook Hunt decreased its 2007 mine production by 506,000 tonnes over the course of the year due to delays relating to financings, permits, and equipment and skilled labor availability. "A similar decrease in 2008 production would shift the anticipated oversupply to deficit."

"We believe that concern regarding decreased zinc demand from a slowdown in the U.S., economy may be overdone," the analysts asserted, "noting that the United States only accounts for about 10% of global demand. Nevertheless, market sentiment has been further affected by recent news that the Chinese government is studying a plan to remove a 5% tax on zinc exports, likely sometime this year. The news has sparked concern that there may be a rush of Chinese zinc exports into the market, sourced from existing stockpiles ahead of the anticipated tax change."

Haywood advised that they anticipate the zinc market will remain weak for the rest of this year and through 2009, averaging US$1/lb. "We expect strength will return to the zinc market in 2010 and have increased our corresponding forecast to US$1.10 per pound that year (from US$1.00 per pound). A zinc market imbalance (supply deficit) is expected to continue into 2011 and 2012, and we have increased our forecast to US$1.20 per pound during these years (from US$1.00 and US$0.75 per pound respectively."

The analysts asserted that at the current zinc price of 80-cents per pound, "many mines are operating near their break-even cash cost and the global average cash cost is likely in the range of US$0.55 to US$0.65 per pound. At current prices, it is difficult for many established producers to generate decent margins, and greenfield projects would need to be low cost in order to justify the capital-expenditures cost and still yield a return on investment."

LEAD

Haywood noted that China still continues to be the main driver of growth in the lead market, and is expected to account for about 50% of refined lead growth this year as new smelters are built and domestic consumption increases. "Lead demand is also expected to remain strong in the near term, with forecasted consumption growth of 11% in 2008."

Nevertheless, the analysts said they expect a lead market surplus through this year and into 2009, noting that lead and zinc are common co-products/by-products from any given mine. "We have, therefore, revised our forecast lead price down to US$1.05 from US$1.20 per pound in 2008 and to US$1.05 from US$1.10 per pound in 2009."

"We expect the balance in the lead market will reverse in 2010 given that there are only a few large lead projects on the drawing board," the analysts added. "We have increased our 2010 and 2011 forecast lead prices to US$1.10 and US$0.80 respectively, declining to a long-term rate of US$0.85 per pound."

MOLYBDENUM

Haywood's analysis noted that annual world moly consumption totals 400 million pounds and is growing at an estimated rate of 5 to 7% (+20 million pounds) per year. "At this rate, a new +20 million-pound producer will be needed each year just to meet the world's growing demand for molybdenum ,"

"Hence we anticipate molybdenum prices will remain strong over the short to medium term as supply struggles to meet demand," according to Haywood. "A high molybdenum price environment over the past 3 years has encouraged preferential molybdenum ‘high-grading' at a number of copper porphyry operations. However, this practice is not sustainable over longer periods, and we anticipate that a number of producers will report lower molybdenum production on a go-forward basis as operations are forced to return to ‘life-of-mine' grades."

"In light of the expectations of many market participants that growth in demand will continue to outpace supply, a handful of primary molybdenum and co-production projects for existing and proposed mines are currently under consideration," the analysts advised. "However, some face notable financial, technical, and/or political challenges, which will likely delay market availability of this new molybdenum production potential."

Although Haywood anticipates lower moly prices over the long term, a preliminary review of greenfield moly projects now under consideration suggests a long-term Molybdenum price of US$10 to $US12 per pound is required for most of these projections to achieve an economic return on investment. "Our formal price forecast includes a long-term (2012+) molybdenum price of US$15.00 per pound-a modest premium to the metal's average price of about US$12.50 per pound over the past 25 years."

TUNGSTEN

Tungsten concentrate supply disruptions during the first half of this year in China drove concentrate higher on the back of sharply reduced supply. Haywood said strict controls on illegal mining and excessive exploration up to the Beijing Summer Olympics games next month "are expected to keep supplies tight. Our metal price forecasts remain unchanged for tungsten as we continue to monitor developments in China."

URANIUM

Haywood reduced this year's uranium spot price to $80 per pound, and raised its long-term spot price (2013+) to $90 per pound of U3O8. "Our rationale for the increase is the assertion that US$60 per pound of U3O8 is close to the marginal cash cost of production, and is an attractive price for drawing metal traders and funds into the market. Furthermore, additional demand is expected in the spot market by producers that fail to meet anticipated production forecasts and by utilities that wish to build inventories and make discretionary purchases."

"Our lift in the long-term spot price (2013+) was based on the assertion that it will re-establish its long-held equilibrium with the long-term contract price," the analysts explained.

Source: mineweb