\n\tBy Chris Shaw<\/p>\n
\n\tChina accounts for 40% of global consumption and production in the lead market, so that country's lead market balance was a major discussion point at Metal Bulletin's International Lead Conference held last week in Germany.<\/p>\n
\n\tBarclays Capital notes the consensus view at the conference was 2010 will see China record double-digit growth in lead consumption, but there is far from a consensus view with respect to the level of Chinese stockpiles.<\/p>\n
\n\tSome estimates in the market put the Chinese lead stockpile at as much as 450,000 tonnes, but even allowing for this Barclays notes most analysts expect Chinese lead exports to be minimal this year.<\/p>\n
\n\tThere is also scope for China to swing to being a net importer of the metal as Barclays notes lead demand in China is forecast to grow by 13-15% this year. This reflects both solid ongoing economic growth generally and a boost to auto and some bike sales thanks to government incentive programs.<\/p>\n
\n\tOn the supply side Barclays expects Chinese lead output growth to slow as stockpiles are worn down, meaning a move to a deficit by the second quarter of this year. Barclays sees China becoming a net importer of lead by the end of 2010, a change it expects will prove supportive for the price of the metal in the second half of this year.<\/p>\n
\n\tLead is not the only base metal expected to see price support this year. Credit Suisse argues the outlook for nickel prices is also positive given a rebound in stainless steel demand and ongoing supply disruptions that are contributing to a fall in LME stocks.<\/p>\n
\n\tTo reflect the prevailing market conditions, Credit Suisse has lifted its nickel price forecast for 2010 by 28% to US$10.26 per pound. While it expects additional supply to impact in 2011 it has also lifted its price forecast for next year by 10% to US$8.25 per pound. The broker's long-term price forecast is US$6.50 per pound.<\/p>\n
\n\tGSJB Were is somewhat less convinced of nickel's prospects for further strength this year, noting the latest Chinese data show nickel production in that country rose by 25% in year-on-year terms in the first quarter of 2010.<\/p>\n
\n\tIn the view of GSJB Were Chinese consumers are likely to struggle to absorb additional nickel supply this year, as evidenced by industry consultant Antaike forecasting 20% growth in stainless steel production this year, but only 10% consumption growth. This would mean a surplus of nickel in China of around two million tonnes this year.<\/p>\n
\n\tTo play nickel exposure on the Australian equity market Credit Suisse prefers Panoramic Resources ((PAN)), rating the stock as Outperform. Changes to earnings estimates to reflect its revised nickel price expectations sees the broker lift its price target on the stock to $3.00 from $2.25. The FNArena database shows Panoramic is rated as Buy twice and Hold three times, with an average price target of $2.76.<\/p>\n
\n\tElsewhere in the nickel sector Credit Suisse rates Independence Group ((IGO)), Western Areas ((WSA)) and Mirabela Nickel ((MBN)) as Neutral, though changes to forecasts have seen price targets increase.<\/p>\n
\n\tFor Independence the target rises to $5.30 from $4.70, for Western Areas to $6.00 from $5.00 and for Mirabela to $3.15 from $2.30. Respective average price targets according to the FNArena database are $5.34, $5.21 and $3.25, while respective sentiment indicator readings for the stocks are 0.6, minus 0.1 and 0.7.<\/p>\n
\n\tGSJB Were is more confident in the outlook for copper as it notes feedback from industry contacts suggests demand for the metal outside of China is improving. The US is showing stronger demand from most end-use sectors, while European demand for copper semis is up about 15% in year-on-year terms.<\/p>\n
\n\tThis offsets recent softer anecdotal data from China, where the price arbitrage has moved back in favour of the LME against the Shanghai Futures Exchange and where copper demand is said to be running below year-ago levels.<\/p>\n
\n\tCopper also has ongoing supply disruptions working in its favour, supporting GSJB Were's view copper continues to enjoy more positive medium-term supply\/demand fundamentals.<\/p>\n
\n\tOutside of the base metals, one commodity market where Australia is a major player is iron ore. UBS notes Australia has 13% of the world's iron ore resources, putting it fourth after the Ukraine, Russia and China. In terms of iron ore content Australia occupies the number two spot behind only Russia.<\/p>\n
\n\tIn 2009 Australia produced 370 million tonnes of iron ore, with BHP Billiton ((BHP)) and Rio Tinto ((RIO)) accounting for 82% of total production. UBS sees the market outlook as positive over the next couple of years, forecasting the seaborne iron ore market will be in deficit until at least 2012. After that time supply increases should move the market back to a surplus.<\/p>\n
\n\tPrices have risen sharply to reflect the market deficit, but UBS suggests the rise in spot prices are now being threatened by a number of bear factors. These include a growing expectation the Chinese government will turn more aggressive in attempting to limit economic activity.<\/p>\n
\n\tAs well, UBS notes the market is increasingly expecting new policies to target speculative ore trading, while the seasonal trade period in the Chinese market is now coming to an end. There are also concerns over just how much steel demand will contract as a response to rising product prices, which will have a corresponding impact on iron ore demand.<\/p>\n
\n\tDespite these concerns UBS remains positive on the major Australian iron ore plays, rating BHP, Rio Tinto and Fortescue ((FMG)) as Buys. The other pure plays in the sector are Gindalbie ((GBG)), Mt Gibson ((MGX)) and Murchison Metals ((MMX)), which UBS rates as Buy, Neutral and Buy respectively.<\/p>\n
\n\tThe FNArena database shows BHP is rated as Buy six times and Hold three times, while Rio Tinto scores nine Buys. Fortescue is rated as Buy four times and Hold five times, while Gindalbie is only covered by UBS.<\/p>\n
\n\tMt Gibson is rated Buy three times and Hold four times. Murchison scores one Buy and one Hold. OneSteel ((OST)) offers indirect exposure to the iron ore sector and UBS rates the company as Neutral, while the FNArena database shows a total of three Buys, six Holds and one Sell rating.<\/p>\n","protected":false},"excerpt":{"rendered":"
A glance through the latest expert views and predictions about commodities, with commentary on lead, nickel and copper among the base metals and some reasons for caution on iron ore.<\/p>\n","protected":false},"author":9,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[23,27,89,88],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/56533"}],"collection":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/users\/9"}],"replies":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/comments?post=56533"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/56533\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=56533"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=56533"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=56533"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}