\n\tBy Chris Shaw<\/p>\n
\n\tFrom all time highs recorded in February global nickel stocks have been falling, thanks in part to an ongoing strike at Vale Inco's Canadian operations. But there are now reports this strike is about to end, something Credit Suisse sees as a negative for the nickel price.<\/p>\n
\n\tVale's nickel operations in Canada produce around 160,000 tonnes of nickel annually, which equates to about 3,000 tonnes per week. LME stock falls have now reached this rate, so Credit Suisse expects a full re-start of Vale's operations will halt the decline in nickel stocks.<\/p>\n
\n\tThere is likely to be a two-month delay as Credit Suisse estimates it takes this long for the mines, smelters and refineries to return to full production. At the same time, as supply will increase the broker notes the demand side outlook is weakening, with stainless steel production globally a particular disappointment at present.<\/p>\n
\n\tIf the Vale strikes are indeed resolved Credit Suisse suggests the supply side impact could be enough to limit nickel price upside later in the year, even if fears over the global economic outlook subside and investor risk appetite again picks up.<\/p>\n
\n\tStocks on the Australian market leveraged to nickel prices include Mirabela Nickel ((MBN)), Independence Group ((IGO)), Metallica Minerals ((MLM)), Fox Resources ((FXR)), GME Resources ((GME)), Falcon Minerals ((FCN)), Segue Resources ((SEG)), Mincor Resources ((MCR)), Minara Resources ((MRE)), Panoramic Resources ((PAN)), Western Areas ((WSA)), Tectonic Resources ((TTR)), Heron Resources ((HRR)) and Poseidon Nickel ((POS)).<\/p>\n
\n\tMacquarie notes the change in tax policy for miners announced by the Australian Government last week to a Petroleum Resource Rent Tax (PRRT) for coal seam gas (CSG) projects and the North West Shelf means there will be an impact on Australian energy plays, but the stockbroker suggests the valuation impact of the change is likely to be relatively minor.<\/p>\n
\n\tAs Macquarie points out, the change in policy is likely to be accompanied by generous market valuation allowances and this is likely to mean royalty payments will be tax deductible. This suggests many of the projects may never actually incur PRRT payments, which means project economics will remain largely unchanged.<\/p>\n
\n\tMost CSG projects are believed to be modelled on an oil price of less than US$80 per barrel with respect to investment decisions, a level at which Macquarie estimates there will be little in the way of required PRRT payments.<\/p>\n
\n\tIf oil prices rise substantially above this level then more meaningful PRRT payments will be required, as but as the broker points out the higher oil price means such payments would not be a disincentive to investment.<\/p>\n
\n\tMacquarie estimates under a more generous interpretation of the tax deductibility of royalty payments, the overall valuation impact of the new tax proposals will be less than 1% for the likes of Woodside ((WPL)), Santos ((STO)) and Origin Energy ((ORG)).<\/p>\n
\n\tEven under less generous assumptions where royalties incurred are treated like operating expenditure and so are deductible in calculating earnings that are then taxed at the PRRT rate of 40%, Macquarie estimates the valuation impact for the three companies is only likely to be between 1.5-2.5%.<\/p>\n
\n\tIn other words, Macquarie suggests the change to a PRRT policy is much ado about nothing in terms of the financial impact of the larger companies involved in the CSG project sector of the market.<\/p>\n
\n\tRBS Australia has conducted a similar analysis for the Australian coal market, estimating the valuation impact of a shift to a Minerals Resource Rent Tax (MRRT) relative to pre-RSPT (Resource Super Profits Tax) levels is something between neutral to minus 3%.<\/p>\n
\n\tAccording to RBS, the MRRT proposal is a big improvement over the RSPT as there are a number of large concessions included in the new proposal. But even allowing for the change in tax policy, the broker suggests the market at present is looking more at physical market factors than the tax proposals in determining the outlook for coal prices.<\/p>\n
\n\tRecent reports suggest some Asian mills are requesting delays to contracted met coal shipments as inventories are rising and steel demand is falling. This suggests the coal market is unlikely to be as tight in the near term as was the case earlier in the year.<\/p>\n
\n\tGiven such an environment, RBS suggests there would need be strong potential for a step up in coal prices to justify aggressive buying of the producers, and these signs simply aren't there at present. To reflect this, RBS retains its Neutral view on the coal sector.<\/p>\n
\n\tWhat could hold spot prices shorter-term according to Macquarie is new moves by authorities in China to limit coal price movements by introducing some caps. The aim is to limit spot price moves in particular.<\/p>\n
\n\tThe moves have implications for coal prices in China longer-term as well, largely as Macquarie notes costs for Chinese coal players continue to increase. This reflects declining coal quality, stronger environmental and safety requirements and an appreciation of the Chinese currency. In the view of Macquarie, these factors are all bullish for the global long-term coal pricing environment given China's importance to the market.<\/p>\n
\n\tWithin the sector RBS continues to rate Whitehaven ((WHC)) and New Hope Coal ((NHC)) as Buys, the former for its corporate appeal and progress at its various operations and the latter on valuation grounds. Macarthur Coal ((MCC)), Centennial Coal ((CEY)) and Gloucester Coal ((GCL)) are all rated as Hold.<\/p>\n
\n\tBy way of comparison, the FNArena database shows Sentiment Indicator readings for Whitehaven of 0.7, for New Hope and Macarthur of 0.3, for Gloucester of 0.0 and for Centennial of minus 0.3. Centennial yesterday received a $6.20 takeover offer from Banpu of Thailand, which triggered recommendation downgrades to Neutral.<\/p>\n
\n\tIn terms of commodity markets generally, Macquarie notes June was dominated by macroeconomic concerns, which were enough to make investors more jittery and so bring down commodity prices.<\/p>\n
\n\tPrices also weakened on the back of some de-stocking of both end use and first use commodity products, which was enough for investors to ignore still strong supply\/demand fundamentals in many cases.<\/p>\n
\n\tLooking forward, Macquarie notes at current levels some higher cost producers for zinc, aluminium and steel are starting to feel some pain to the extent some production cuts are likely in coming months. These cuts will take some time to counteract weaker prices, so Macquarie suggests prices in these commodities should remain around current levels during the September quarter.<\/p>\n","protected":false},"excerpt":{"rendered":"
A glance through the latest expert views and predictions about commodities, with a resolution of labour strikes seen as bad news for nickel prices and more tax related reviews for Oz miners.<\/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":[23,27,89,24,88],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/56840"}],"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=56840"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/56840\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=56840"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=56840"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=56840"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}