Metals sector hot but for how long?

By Steve James

NEW YORK (Reuters) - With gold nudging $1,000 per ounce, silver at 27-year highs and copper approaching record prices over $4 per pound, some metal industry analysts believe the current boom still has years to run.

On Friday, Friedman Billings Ramsey raised its price forecasts for aluminum, copper, zinc and gold, citing the recent run-up in commodities driven by investment fund flows and dollar weakness.

The brokerage firm raised its 2008 aluminum price forecast to $1.27 per pound from $1.15, copper to $3.33 per pound from $2.94, zinc to $1.11 per pound from $1.00 and gold to $875 per ounce from $825.

Citigroup Global Markets also raised its copper price view to $3.00, aluminum to $1.20 per pound, nickel to $10 per pound and zinc to $1.05 per pound by the second half of 2008.

"Base metal prices are up on average 27 percent since the start of the year and copper has reached an all-time high at the same time as the U.S. heads into recession," said Citigroup analyst Alan Heap.

"Even in a super cycle this is an amazing performance," he wrote in a research note.

In such a hot sector, the question among analysts is how long can the boom last in a notoriously cyclical industry. This is one of the issues that will be explored by mining industry executives at the March 10-12 Reuters Mining Summit in New York, London and Sydney.

"We are in the camp that thinks the cycle will continue higher in view of the tremendous demand movement which should last well into the next decade," said Evan Smith, co-manager of U.S. Global Investors Inc of San Antonio, Texas.

"This is not just a blip," said Smith, co-manager of U.S. Global's $1.6 billion global resources fund, about half of which is invested in mining stocks.

Brett Levy, a high-yield analyst at Jeffries & Co, agreed, saying he sees demand for metals continuing to be driven by China's huge economic and infrastructure growth.

"The numbers (in China) are astounding. They still have another 200-to-300 million people they want to move from an agrarian economy to industrial.

"The question is, 'Will the malaise in the U.S. drag the rest of the world into recession? Or will the U.S. right its ship and the rest of the world will sail well?'" said Levy. "It will take a while, but I think the U.S. gets its ship righted and the world won't be in the doldrums."

Levy said he was bullish on aluminum and relatively bullish on copper because no new major deposits had recently been discovered. "There's a decent number of nickel projects and zinc has a pretty decent outlook," said Levy.

U.S. Global's Smith said emerging economies in developing countries would push huge growth in demand for base metals. "China and India are the big drivers and even with high growth rates, they are still so far behind in the infrastructure building process.

"Supply is the difficult thing," he said. "That's why you've seen copper go from 60 cents to $4.  Continued...