Articles on: Metal Prices

Note: This is part two of a two-part series discussing a recent report from Ernst & Young. Part one offers  additional insight and an introduction to the topic.

Inaccurate Analytics

The Ernst & Young report expresses disdain at the accuracy of metals price predictions, noting the disappointing errors of the past few years. The writers suggest that some metals, like nickel and copper, are hard to predict, but add, This has been, not coincidentally, a time of sustained market strength and rising metal prices over the last three years. Analysts, almost universally, have been predicting a sharp decline in metals prices to return to the average levels of the previous 10 years ¦ It is only when the mining companies are really convinced that future revenue from operations justifies the commitment of significant capital outlay that they will accept the risk, resulting in further capacity ¦ Investing just before prices plummet is a far harder mistake to survive than going along with cautious market sentiment and not making an investment.

The problem with any forecast is that it relies on forecasting tools — typically statistical models that rely on past data. These models may be better than a guess in the air, but they inherently fail to act in a predictive fashion because the utilized information has been gleaned in hindsight. In addition, it is always challenging to incorporate correct estimates of multiple factors, such as supply and demand, supply risk events which affect supply and demand patterns, technological innovation, etc. Read more

Note: This is part  one of a two-part series.

The mining sector saw $70 billion in transactions during 2006 alone, and a recent study from Ernst & Young suggests that this number will rise in 2007 and 2008, particularly if BHP Billiton moves forward in their bid to overtake Rio Tinto — a topic that was discussed on MetalMiner earlier  this week.  Consolidation shows no signs of slowing, and high metals and mineral prices are fuel for further acquisitions. In addition, the report reveals another finding that metals experts and analysts might consider interesting: The accuracy of outcomes for the recent metal price forecasts has been consistently disappointing, reports the paper, EYeSight on Consolidation: Backpedalling on the Cycle. This is a crucial piece of the report, as metal price forecasts, accurate or not, can be responsible for consolidations, acquisitions, and the choices investors make.

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