OIT Times: Market Outlook for Basic Industries--Insights from Leading Analysts

March 22, 2001

Connie Holmes of the National Mining Association moderated as industry analysts provided their perspectives on the current and future states of several basic industries.

Petroleum. John Parry of the John S. Herold Company noted that oil and gas prices have recently become decoupled, with natural gas prices rising ut of whackwith oil and historical levels. A return to the traditional relationship is expected over the next year. Parry said the U.S. has one nowherein producing gas over the past five years, with deep water exploration in the Gulf of Mexico the only bright spot in the short-term picture. As a result, natural gas imports, especially from Canada, will continue to escalate.

Metals and Mining. Daniel Roling of Merrill Lynch noted the dependence of the ew Economyupon the ld Economy.Increases in computer use, for example, are fueling demand for copper and aluminum for circuitry and coal to generate electricity. Major growth in metals demand is seen in Asia, especially in China and the ive Tigers,although worldwide and U.S. demand do not necessarily move in tandem.

Another trend to watch is the evolution from maintaining full inventories to practicing ust in timeand n-timeelivery. Most metals and coal inventories are now at historically low levels, with the exception of steel mills. Roling also sees a trend toward more efficient and profitable mining operations in many commodities.

Forest Products. e can go longer without food and water than we can without paper,asserted John Wissman of Jaakko Poyry Consulting, Nevertheless, with production outstripping demand, investors are avoiding many U.S. paper companies, causing unprecedented consolidation. With high costs of entry, most new mill capacity is being built outside of the U.S. However, this capacity is meeting mostly local needs. Regardless of falling prices, steady demand and solid earnings along with deflated stock prices make this a timely industry for investors to investigate.