Goldman cites supplies, ups nickel, zinc forecasts

Goldman Sachs has significantly hiked its average price forecasts for nickel and zinc for this year and next to reflect tight supplies, the U.S.-based investment bank said in a research report.

The bank revised up its average nickel price forecast to $23,874 a tonne for this year against a previous forecast of $18,940. The 2007 forecast jumped to $25,000 from $18,750. Goldman sees zinc averaging $3,274 a tonne this year compared to its initial expectation of $2,954, and the 2007 forecast was raised to $4,298 from $2,875.

“The price increases reflect tighter markets than we had previously expected, as well as adjustments for year to date pricing,” Goldman said.

The change was attributed to rising productions costs, which Goldman sees stemming from higher taxes and royalty rates, stricter environmental restrictions and more demand for mining companies to support communities affected by their operations.

“We believe these higher costs will continue to lend support to long-dated base metal prices that must price the high-cost ton of metal supplied to the market”, the bank said.

Goldman also boosted its iron ore price estimate for the coming year, calling for a 10 percent increase of the April 2007 contract price instead of a roll over. As with base metals, supply tightness was seen as the underlying factor.

“We are not expecting a rapid conclusion to the negotiations between the iron miners and the steel producers,” Goldman said.

“There may be a sticking point over BHP Billiton’s repeated attempt to gain a premium to Brazilian ore, reflecting lower freight rates from Australia to China and Japan.”

Elsewhere, Goldman decided earlier this week to raise its platinum price forecast. The estimate was revised up to $1,225 an ounce from $1,100 previously, and the new 2008 number is $1,085 from $900.

“Long-term prices move up, reflecting higher costs, of materials and labour within the South African mining industry,” the report said.