\n\tBy Chris Shaw<\/p>\n
\n\tGoldman Sachs has completed a review of the zircon market, one that factors in both recently completed projects and the economics of greenfield opportunities in the sector.<\/p>\n
\n\tThe end result is the broker has lifted its long-term price assumption for zircon to US$1,026 per tonne, which inflates to US$1,190 per tonne in 2015 money. This compares to a previous long-term forecast of US$850 per tonne in 2015 money.<\/p>\n
\n\tWhile its annual price forecasts for 2010-2014 are unchanged Goldman Sachs suggests price risk is to the upside, this due to stronger than expected Chinese imports and some supply disruptions in South Africa in the first half of this year.<\/p>\n
\n\tThese disruptions are expected to see the market record a surplus this year of around 24,000 tonnes, down from 91,000 tonnes last year. Modest surpluses are also expected in 2011 and 2012, then deficits in both 2013 and 2014.<\/p>\n
\n\tFactoring the changes into its models for both Iluka ((ILU)) and Mineral Deposits ((MDL)) sees Goldman Sachs lift its base valuation for the former to $7.32 from $6.08 and for the latter to $1.65 from $1.32.<\/p>\n
\n\tIn the case of Iluka, Goldman Sachs has lifted its price target to $6.50 from $6.00, which compares to an average target according to the FNArena database of $5.46. For Mineral Deposits the broker retains its target of $1.25, while the database shows an average target of $1.24.<\/p>\n
\n\tGoldman Sachs rates Iluka as a Hold and Mineral Deposits as a Buy, while the FNArena database shows respective Sentiment Indicator readings for the two companies of 0.4 and 1.0.<\/p>\n
\n\tIn relation to natural gas, Barclays Capital notes the months of May, June and July have registered 16%, 17% and 14% more cooling degree days than the averages for the past 10 years, which has had the effect of moving inventories from a surplus to a deficit relative to last year's end of July levels.<\/p>\n
\n\tThe seasonal peak for gas inventories is still three months away and there is scope for uncertainty between now and then notes Barclays. This reflects the potential for hurricane season and weather changes to cause some changes to supply and demand levels.<\/p>\n
\n\tIn coming months JP Morgan expects the market will continue its recent pattern of weather and event-driven rallies that fail to hold higher levels. This largely reflects the current domestic production situation in the broker's view.<\/p>\n
\n\tLooking ahead a few months, Barclays expects end of October gas inventories of 3.9 trillion cubic feet, which implies a considerable loosening of market balances relative to last year. This implies a change in conditions, as JP Morgan notes the US gas market's balance had in fact tightened in both May and June, This tightening at least temporarily came to a halt in July.<\/p>\n
\n\tJP Morgan has made minor changes to its natural gas price forecasts for 2010, lowering its estimate for the September quarter to US$5.00\/MMBtu from US$5.25 previously and in the December quarter to US$5.25\/MMBtu from US$5.50 previously. This has the effect of dragging down its full year forecast to US$4.90\/MMBtu from US$5.25 previously.<\/p>\n
\n\tIn 2011 JP Morgan is forecasting a gas price of US$5.50\/MMBtu, though it suggests risk to this forecast favours the bear side at present.<\/p>\n
\n\tDeutsche Bank's weekly iron ore report notes prices in physical markets have continued to creep higher, buying coming predominately from traders in the market. More stable steel prices of late have given trading companies reason to speculate on the market's upward trend but Deutsche suggests further upside could be limited as large steel mills buying on September quarter pricing can sell any excess into the spot market.<\/p>\n
\n\tPrices should therefore be a bit more stable in Deutsche's view, though it suggests there remains some potential for gradual increases over the next week. As a result the broker suggests playing the range from the long side of the market.<\/p>\n
\n\tStocks listed on the Australian Stock Exchange offering exposure to iron ore include Rio Tinto ((RIO)), BHP Billiton ((BHP)), Fortescue Metals ((FMG)), Grange Resources ((GRR)), Mount Gibson ((MGX)), Murchison Metals ((MMX)), Atlas Iron ((AGO)), Gindalbie Metals ((GBG)), Sundance Resources ((SDL)), Australasian Resources ((ARH)), Brockman Resources ((BRM)), Sphere Minerals ((SPH)), BC Iron ((BCI)), Flinders Mines ((FMS)), Alkane Resources ((ALK)), Territory Resources ((TTY)), Strike Resources ((SRK)), Admiralty Resources ((ADY)), Western Plains Resources ((WPG)), Indo Mines ((IDO)) and Carnavale Resources ((CAV)).<\/p>\n
\n\tIn copper, Commonwealth Bank notes Shanghai Futures Exchange (SHFE) spot prices are below London Metals Exchange (LME) prices at present. This is significant in the bank's view as the SHFE price premium usually offers a guide to the relative strength of metals sentiment in China and the rest of the world.<\/p>\n
\n\tIf the current SHFE discount is maintained or widens further in coming months, Commonwealth Bank would expect China's imports of copper to slow.<\/p>\n
\n\tThe arbitrage between SHFE and LME prices impacts on market activity, Standard Bank noting when the ratio is is above 8.0-8.1 market participants typically buy LME copper and sell SHFE and when the ratio falls below 7.9 they do the opposite.<\/p>\n
\n\tThe ratio at present is below 7.75, which implies traders may look to buy SHFE copper and sell the LME market. Standard Bank notes this reverse arbitrage is usually done via the futures market rather than having physical metal exported out of China.<\/p>\n
\n\tStandard Bank suggests if LME prices remain strong, boosted by fresh fund-based buying, arbitrage selling activity of the past couple of weeks could be unwound early. This has the potential to send LME copper prices even higher over the short-term in the bank's view.<\/p>\n","protected":false},"excerpt":{"rendered":"
A glance through the latest expert views and predictions about commodities, with Goldman Sachs lifting its zircon estimates, analysts updating on the natural gas and iron ore markets and arbitrage activity in copper.<\/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":[23,27,89,24,88,26],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/57023"}],"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=57023"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/57023\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=57023"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=57023"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=57023"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}