Citicorp Forecasts Reduce Metal Price Volatility, Favor Copper

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In a report issued Wednesday, Citigroup analysts John Hill, Graham Wark, and Paul Cheng said they see metals and mining mergers and acquisitions "as driven by scarcity, frictional barriers to new capacity, and free cash flow premia.

Citigroup metals analysts said they believe "the defining features of 2008 may well be reduced volatility in metals prices, and key equities finally moving to full market multiples."

In a report issued Wednesday, Citigroup analysts John Hill, Graham Wark, and Paul Cheng said they see metals and mining mergers and acquisitions "as driven by scarcity, frictional barriers to new capacity, and free cash flow premia. Cash is piling up, opposite a dwindling pool of re-investment opportunities. ...China is hungrily stalking copper, iron ore, and other strategic metals/mining assets."

"We take comfort from high seaborne freight rates, and implications for Chinese commodity demand," they said. "Every day seems to yield yet another announcement of a major pension or sovereign investment fund establishing a position of commodities, usually index based."

"Overall, we see the supply-centric tenets of the commodity Supercycle as entirely intact."

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