VANCOUVER (CP) - Investment firm UBS raised its price forecasts for base and precious metals Tuesday, with the biggest increases for zinc and aluminum.
The improved forecast also prompted the company to upgrade its rating on U.S. aluminum giant Alcoa Inc. [NYSE:AA] and base metals miner Inmet Mining Corp. [TSX:IMN] of Toronto from ''neutral 2'' to ''buy 2.''
In addition, the company also increased its forecast for the price of gold to $600 an ounce for 2007.
UBS also raised the ratings for all the North American gold companies it covers from ''neutral 2'' to ''buy 2'' with the exception of Northgate Minerals Corp. [TSX:NGX], which it left at ''neutral 2'' and Buenaventura [NYSE:BVN] which was upgraded from ''reduce 2'' to ''neutral 2.''
''UBS expects a poor supply response to historically high commodity prices, combined with significant cost inflation, to be supportive of prices in 2006,'' the firm said in a report to clients.
''We expect that 2006 will see a continuation of strong capital flows into the commodity asset class.''
Prices for most commodities, particularly copper, zinc and other key industrial metals, have risen in recent years because of soaring demand from China and India.
Rapid economic growth in those countries and other parts of Asia has led to the building of new factories, office buildings, highways and other infrastructure as well as increased production of steel, machinery and other goods for export.
The UBS upgrade comes as some of Canada's biggest mining companies perpare to release their earnings. Vancouver-based Teck Cominco [TSX:TEK.SVB] is expected to release its fourth-quarter earnings after the close of markets on Wednesday.
According to Thomson Financial, the mining company is expected to earn C$1.72 per diluted share based on the average of 10 analyst estimates. That would top the compnay's earnings of C$1.17 per share a year ago.
Inco is scheduled to hold a conference on Feb. 14 to discuss its 2005 financial results and its outlook for this year and beyond.
According to the Bank of Montreal commodities price index, prices were up by almost a third at the end of 2005 compared with a year earlier but a streak that began more than three years ago is likely beginning to cool off a bit.
The bank said earlier this month that Canadian commodity price index rose 32.8% last year but ''the current strong momentum in the overall index is not expected to be sustained through 2006.''
The index was powered by oil and gas, whose prices last month were 64.9% above December 2004. Metals and minerals followed with a 21% year-over-year price gain.
(c) The Canadian Press 2006