A poll of 13 analysts, mainly at large banks, published by Reuters at the start of London Metal Exchange week, shows that many of them have revised upwards their forecasts of long run metals prices. The LME metals subject to the largest upward revisions are lead, nickel and tin. Long-term prices, often called incentive prices, look 10 years or more into the future and are seen as the price needed to assure growth rates in future capacity to satisfy expected long-term demand rates.
“We’ve seen a massive increase in operating costs across the board, primarily from energy. Labour costs have also been a big component of that,” Merrill Lynch analyst Daniel Hynes said. “In addition, over the past few years we’ve also seen capital costs and infrastructure costs increase as well and all of those contributed to the long term prices needed to bring on new production in those markets,” he said.
Analysts said risks associated with certain geographical regions, like taxation regimes, resource nationalism and acute shortages in the labour pool all added to miners’ costs. "Many new projects are in more politically effervescent parts of the world such as central Africa which will likely require a higher sustainable price to bring to production," analyst Nick Moore at ABN Amro said. He also said persistent dollar weakness would be a key factor for costs since many mining companies earn their revenues in dollars, while costs increase in local currencies.
Current long-term tin prices forecasts range from a low of $3.00/lb ($6,614/tonne) from Citigroup to $12,500/tonne by Barclays Capital. The mean of the new forecasts is $8,825/tonne, 36% higher than a year ago. Upward revisions for the other LME metals ranged from 10% for zinc to 50% for lead.
