\n\tBy Chris Shaw<\/p>\n
\n\tBase metal prices continue to experience volatile trading but Barclays Capital sees one reason why further downside in aluminium prices could be limited. On the group's numbers, as much as 40% of global aluminium production is now operating at a loss.<\/p>\n
\n\tMuch of this production is in China, where Barclays points out producers are dealing with a combination of rising costs and falling prices. Higher power costs are placing smelters under additional pressure, to the extent marginal producers are now estimated to be generating losses of around US$300 per tonne.<\/p>\n
\n\tWhile production cuts have not yet been announced, Barclays expects producers will eventually react to the current weakness in prices, a move that would help improve balance in China's domestic market where the surplus has been expanding.<\/p>\n
\n\tSmelters in Europe and the US would also be struggling at current aluminium price levels according to Barclays, which has prompted some responses from the likes of Russian producer Rusal. The company has indicated it may shut 2-3 million tonnes per year of capacity given the weakness in prices.<\/p>\n
\n\tAluminium closed overnight at US$1,938 per tonne, with MF Global's technical analysis suggesting support currently stands at US$1,785 per tonne. Having previously been a support level, US$1,950 per tonne is now expected to act as resistance in MFG's view.<\/p>\n
\n\tAcross the other industrial metals, MF Global suggests support for copper is at US$5,750 per tonne and resistance at US$6,400 per tonne, while for zinc support is at US$1,500 per tonne and resistance at US$1,850 per tonne.<\/p>\n
\n\tFor lead, MF Global sees support at US$1,550 per tonne and resistance at US$1,770 per tonne, while for nickel the respective levels are US$17,000 and US$19,500 per tonne and for tin US$14,700 and US$18,600 per tonne respectively.<\/p>\n
\n\tAt UBS the focus has been on coal, with the broker factoring in last month's earnings guidance revision from Macarthur Coal ((MCC)) to form the view it may have been too optimistic with respect to realised pricing expectations.<\/p>\n
\n\tUBS had previously expected higher realised prices from April 1st of this year, but the Macarthur update indicated March shipments would be sold in the June quarter and so would not be at the higher contract prices.<\/p>\n
\n\tTo reflect this, UBS has lowered its earnings forecasts for both Centennial Coal ((CEY)) and Whitehaven Coal ((WHC)) by 18% and 30% respectively in FY10. For Centennial UBS now expects earnings per share (EPS) this year of 15.1c and in FY11 of 43.1c, which compares to consensus estimates according to the FNArena database of 16.8c and 38c.<\/p>\n
\n\tFor Whitehaven, UBS is now forecasting EPS of 10.4c and 27.3c in FY10 and FY11, while consensus estimates according to the database stand at 13.4c and 26.5c.<\/p>\n
\n\tRecent share price weakness sees UBS upgrade Centennial to a Buy rating with a revised price target of $4.75, while Whitehaven is rated as Neutral with a price target of $5.20. The FNArena database shows Centennial is rated as Buy and Hold four times each and Sell once with an average target of $4.85, while Whitehaven scores four Buys and two Holds and has an average target of $6.13.<\/p>\n
\n\tTaking a broad view of the coal market, UBS currently prefers thermal coal over met coal on a 6-12 month view. This is largely due to the global steel sector entering its seasonally weaker second half production and trading period.<\/p>\n
\n\tIn contrast, UBS expects thermal coal trade should remain strong thanks to ongoing buying by China and India, with the value of this trade to be underpinned by annual and semi-annual contract prices.<\/p>\n
\n\tJP Morgan has reassessed the Basic Materials sector as a whole, using a range of metrics to compare stocks with a focus on expected dividend yields. This focus on dividends reflects the view yields will increasingly be a point of differentiation for investors in a tough market period, as weaker share prices mean yields make up a larger part of total return.<\/p>\n
\n\tAcross its Basic Materials coverage universe JP Morgan notes the best yielding stock is Boart Longyear ((BLY)), with a forecast current year yield of around 8%. Next most solid yields come from Adelaide Brighton ((ABC)) and CSR ((CSR)), both of which are expected to deliver yields of better than 5% in the current financial year.<\/p>\n
\n\tThose Basic Material companies offering yields of better than 4% include Amcor ((AMC)), Orica ((ORI)) and Fletcher Building ((FBU)). Amcor is of particular interest in this group as JP Morgan notes the yield will help supplement returns leading into what should be solid earnings growth in FY11 and FY12 as the benefits of the recent Alcan transaction begin to flow though.<\/p>\n
\n\tAt the other end of the scale, JP Morgan notes PaperlinX ((PPX)) is currently not expected to pay a dividend this year given an expected full year net loss. Dividends from James Hardie ((JHX)), Incitec Pivot ((IPL)) and Nufarm ((NUF)) are also forecast to be modest, but as the broker notes none of these companies are considered yield plays.<\/p>\n
\n\tThe FNArena database shows Sentiment Indicator readings for Boart Longyear, Adelaide Brighton, and Amcor of 0.9, while James Hardie and Incitec have readings of 0.7. CSR and Fletcher Building score readings of 0.5, Orica and PaperlinX 0.3 and Nufarm scores a minus 0.3 reading.<\/p>\n","protected":false},"excerpt":{"rendered":"
A glance through the latest expert views and predictions about commodities with signs aluminium prices may be near a bottom, adjustments to coal sector earnings and basic materials yield plays.<\/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":[23,27,89,41,88,37,26],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/56733"}],"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=56733"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/56733\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=56733"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=56733"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=56733"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}