Demand for Raw Materials Makes Merrill an Optimist; MARKET ROUND-UP

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Byline: Mickey Clark

MERRILL Lynch is confident the global economic recovery is already underway. It sees growing demand for raw materials which will, in turn, be good news for the big mining companies.

Merrill has jacked-up its forecast for the copper price by a whopping 59% to $7000 a tonne because stock piles of the metal remain low. It has also raised its forecast for other metals, including nickel, up 32% to $18,500 a tonne. Bulk commodities, such as iron ore goes up by 10% compared with its previous forecast of a 5% fall by 2010. Coking coal is raised 9% to $140 a tonne whereas it had been looking for a decline of 10% to $115 a tonne yearon-year.

The broker also argues that rising commodity prices could also provide the catalyst for a renewed burst of merger and takeover activity as companies take the view they are missing out on a chance to acquire growth options or bulk up on the cheap.

It has decided to upgrade some of the more leveraged mining companies and attributes the move to the expectation of higher metal prices and the global economic gathering pace. It has a buy rating on some of the big names including Xstrata, down 21/2p at 844p, with a price target of 1150p, Vedanta, up 13p at 1861, target 2750p, and Kazakhmys, 10p better at 9231/2p, (1250p). But it has cut Fresnillo, down 131/2p at 6271/2p, from neutral to buy with a 765p target. Fresnillo is regarded as a well run company with "excellent assets", but Merrill thinks precious metals could lag industrial metals for a period and it now looks fully valued.

Also on the buy list are Rio Tinto, 38p cheaper at 2531p, Lonmin, a penny lighter at 1417p, and Anglo American, down 201/2p at 1952p.

Leading shares generally had a lacklustre feel about them. Prices were just a touch firmer for choice in another day of thin volume with investors proving reluctant to chase prices still higher after the market's recent strong run. The FTSE 100 index rose less than a point to 4672.2.

The lower-than-expected losses from state-owned Lloyds Banking Group were greeted with a huge sigh of relief and the shares responded with a rise of 5.4p at 89.62p as stock market bears raced to cover their positions. The Government has a 43% stake in the UK's biggest mortgage provider after providing it with [pounds sterling]17 billion of emergency cash following its merger with HBOS last year. …