MELBOURNE, May 11, 2006 (AsiaPulse via COMTEX) -- The booming Chinese economy is driving a "step change" in the commodities market that will leave prices at high levels for years and continue to drive bumper profits for miners, according to a new report.
In a report released today, investment bank GoldmanSachs JBWere (GSJBW) has upgraded its long term commodity price forecasts by between 20 per cent and 30 per cent.
GSJBW resource analysts have firmly backed the so-called BRICs story, which holds that rapid growth and industrialisation in Brazil, Russia, India and China has permanently bumped prices to a new level.
"We believe we are witnessing a structural shift in commodity prices and demand growth and this provides a super normal profit environment for incumbent producers and valuable growth options," the report said.
Taking into account future production and predicted demand, GSJBW has hiked its long term forecast for the price of copper by 29 per cent, iron ore by 21 per cent, zinc by 37 per cent and oil by 33 per cent.
The analysts also boosted the investment bank's short term forecasts for commodities across the board.
Gold is now forecast to trade between $US630 and $US850 an ounce, with a bias to the upside, after a previous forecast range of $US550 to $US700 was overtaken by the actual price.
GSJBW also believes Australia's major iron ore producers will win 15 per cent increases in this year's negotiations with Asian steel makers, up from an earlier forecast of a 10 per cent rise.
GSJBW then expects contract iron ore prices to be flat next year and drop 10 per cent the year after that.
Following on from its bullish forecasts, GSJBW also boosted profit forecast for Australia's miners.
It has lifted its earnings per share (EPS) forecasts for BHP Billiton by four per cent for 2005/06, 19 per cent for 2006/07 and seven per cent for 2007/08.
GSJBW now expects the world's biggest miner to register an Australian record net profit in 2005/06 of $US10.7 billion ($A13.84 billion), followed by a mammoth $US11.4 billion ($A14.75 billion) in 2006/07 and $US10.2 billion ($A13.2 billion) in 207/08.
Rio Tinto's EPS forecasts are up 13 per cent in 2006, 19 per cent in 2007 and 13 per cent in 2008.
GSJBW is expecting the miner to post a net profit of $US7.1 billion ($A9.19 billion) in 2006, $US6.3 billion ($A8.15 billion) in 2007 and $US6 billion ($A7.76 billion) in 2008.
The report released today said suppliers of commodities have been struggling to keep pace with soaring demand growth.
"In many commodities, operations are running at 100 per cent of capacity, and the incidence of companies failing to meet their production targets is rising," it said.
At the same time the quality of projects being developed had weakened, especially in base metals.
"Today's potential projects are typically smaller and lower in grade than those of 10 years ago," the report said.
Costs for producers were continuing to rise and, with much of the increase structural, looked set to stay high, the report said.