Citigroup forecasts less volatile metal prices

Analysts from Citigroup have issued a report in which they state that “the defining features of 2008 may well be reduced volatility in metals prices”.

The report also refers to metals and mining mergers and acquisitions “as driven by scarcity, frictional barriers to new capacity” and with cash “piling up, opposite a dwindling pool of re-investment opportunities”.

The analysts continue to favor copper as “the best positioned among the ferrous metals”, bearing in mind Chinese important requirements.

The metal has only experienced “modest contagion” from the US sub-prime mortgage crisis and Citigroup’s copper price forecast for 2008 is $3.50 lb; 2009 and 2010 $3 lb.

Turning to aluminium, the report states that “2008 will be aluminium’s year” and the analysts are “comfortable with a $1.20 lb forecast. The long-term floor is likely to be well above $1 lb”.

The group expects nickel to settle in the $11 lb to $13 lb range, pointing out that “cutbacks from stainless mills in the third quarter have diverted nickel to LME warehouses, which are now … representing 13 days of consumption”.

In their review of stocks, the analysts named Freeport-McMoRan Copper & Gold as the best mining/metals stock this year, with an 82% increase. Nonferrous stocks are up 65% YTD, while gold stocks have increased 16%.

Looking to the future, Citigroup favors Freeport for copper, Alcoa in aluminum and Barrick for gold.