\n\tBy Chris Shaw<\/p>\n
\n\tOil prices in 2010 have averaged about US$79 per barrel and as this was a little better than UBS had forecast the broker has lifted its forecasts for 2011 onwards. UBS's new forecast for 2011 is an average price of US$85 per barrel for both West Texas Intermediate and Brent and compares to a previous expectation of US$80 per barrel.<\/p>\n
\n\tIn terms of a market view, UBS sees the oil market as currently well supplied, a trend expected to continue for at least the medium-term. This reflects the view OPEC currently has a historically high level of spare capacity, which should allow for additional net production from OPEC members through 2015 of as much as six million barrels per day. Non-OPEC production is forecast to be relatively flat over the same period.<\/p>\n
\n\tOn the demand side UBS expects global growth will increase by 1.5% to 88.5 million barrels per day in 2011, with non-OECD nations to drive this growth given expectations both US and European demand declines in coming years.<\/p>\n
\n\tThe changes to UBS's oil price forecasts mean changes to earnings estimates among the Australian oil plays among its coverage universe, with forecasts lifted for almost all stocks in this category. Factoring in new earnings forecasts means increases in price targets for all except Caltex ((CTX)) and Karoon Gas ((KAR)), the changes ranging from a 0.9% increase for Roc Oil ((ROC)) to a 7.5% increase for Woodside ((WPL)).<\/p>\n
\n\tPost the review UBS's top picks in the sector remain Woodside, Oil Search ((OSH)) and Karoon ((KAR)), all of which the broker rates as Buys. UBS also rates Santos ((STO)), Australian Worldwide Exploration ((AWE)), Beach Petroleum ((BPT)) and Tap Oil ((TAP)) as Buys, while Caltex and Roc are rated as Neutrals and AED Oil ((AED)) is rated as a Sell.<\/p>\n
\n\tTurning to mineral sands, Citi suggests the main conclusion from last week's AJM Mineral Sands Conference in Melbourne was it is currently difficult to see any easing in the current zircon shortage in the market. <\/p>\n
\n\tDemand destruction remains a threat, but as Citi notes there are few substitutes for zircon in ceramics, while in refractories and foundries chromite is a potential substitute but offers poorer relative performance. <\/p>\n
\n\tAdditional supply is possible if existing producers were to lower cut-off grades, while tailings could also be used to boost the amount of material available. Citi sees these as the most likely options on the supply side as new mines remain some time off coming into the market.<\/p>\n
\n\tCiti notes the latest market statistics show the average Australian export price for zircon is around US$900 per metric tonne unit (mtu), while spot trades are currently occurring at around US$1,300 per mtu. <\/p>\n
\n\tAt the conference one consultancy suggested prices could increase by 40% in 2011, which is already reflected by spot price transactions, while a major producer at the conference suggested a price of US$1,500 per mtu would be enough of an inducement to impact on the market. <\/p>\n
\n\tCiti also toured copper operations in Chile recently, coming away from the visit with the view the outlook for copper remains positive given expectations of a global deficit in copper mine supply again in 2011. <\/p>\n
\n\tWhile China is currently de-stocking, at some point the Chinese will need return to the market and this will be a positive for global demand in Citi's view. What will also help keep the global market tight is the expectation of limited growth in supply from Latin America, as existing mines are being depleted and permits for, and the capex and technical requirements of, new projects become greater.<\/p>\n
\n\tIn coal, RBS notes weather continues to disrupt the seaborne coking coal market, with a number of Queensland producers already declaring force majeure and scope for some New South Wales producers to follow suit in the New Year.<\/p>\n
\n\tAssuming exports from NSW come under pressure in coming months RBS expects thermal coal prices will increase in the first and second quarters of 2011. This is especially the case as Chinese and Indian demand should remain relatively strong.<\/p>\n
\n\tWith global steel production appearing to have bottomed out in August, RBS sees stronger support for metallurgical coal demand and in turn sees this as supportive to prices in that market as well. At present RBS suggests the earnings impact of lost production for major Australian producers BHP Billiton ((BHP)) and Rio Tinto ((RIO)) will be limited, as the lower production is being offset by higher prices. <\/p>\n
\n\tForecast prices for coming periods have changed, as having previously anticipated a rolling over of coking coal prices between the final quarter of 2010 and the first quarter of 2011 RBS now sees prices increasing given the disruption to supplies. Beyond the first half of 2011 RBS makes no changes to its coal price forecasts, which implies 15% gains in coking coal prices in 2011 and a further 5% increase in 2012.<\/p>\n
\n\tDeutsche Bank has also reviewed the thermal coal market, noting prices have risen by about 20% over the past quarter to US$109 per tonne. The increase reflects the supply disruptions highlighted by RBS as well as re-stocking, cold weather in the northern hemisphere and some short-covering in the market.<\/p>\n
\n\tIn Deutsche's view prices could continue to remain well supported as weather conditions favour strong demand and demand in general is expected to intensify into 2011. Much of this demand will come from China and India as economic growth is seen as remaining a priority in both economies.<\/p>\n
\n\tOverall, Deutsche expects the thermal coal market will be in a deficit to the tune of 28 million tonnes in 2011 and 30 million tonnes in 2012, this forecast causing the broker to lift its price estimates in coming years. Deutsche is now forecasting thermal coal prices of US$118 per tonne in 2011 and US$140 per tonne in 2012, up from previous estimates of US$110 per tonne and US$120 per tonne respectively. <\/p>\n
\n\tWhat also supports the increases to its forecasts is Deutsche's view coal reserves may become more strategic going forward, as for example the broker expects China's coal supply growth could decelerate in coming years as moves are made to limit output.<\/p>\n
\n\tIndonesia is making similar moves, Deutsche noting the government has issued a decree that in 2011 all mines have a obligation to supply 24.2% of their production to the local market. Such moves create more competition for tonnes and this suggests some upside risk to prices in the broker's view. <\/p>\n
\n\tCiti suggests such positive coal market conditions are likely to keep M&A activity high in the coal sector, especially as more resources are unlocked by emerging companies and as strategic investors chase large deposits to ensure security of supply.<\/p>\n
\n\tCiti estimates such strategic investors now account for almost two-thirds of the volume of transactions completed in the global coal market in 2010, these investors paying more for coal assets in total but acquiring them more cheaply than coal companies in terms of the price per tonne of resource.<\/p>\n
\n\tApplying this view to the Australian coal market, Citi suggests Resource Generation ((RES)) appears a strong candidate for M&A activity. Cockatoo Coal ((COK)) is another company likely to be analysed as a potential target, though Citi notes its tight share register would make any deal more complicated. Both Resource Generation and Cockatoo are rated as Buy by Citi, which is the only broker in the database to cover both companies. <\/p>\n
\n\tFinally on gold, Deutsche Bank continues to see upside to prices given the expectation in a situation where central banks are trying to keep interest rates low gold will still be able to compete for risk capital.<\/p>\n
\n\tAt the same time central bank buying as a means of diversifying assets has created a new source of demand for gold to add to the buying from Exchange Traded Funds. Given current market conditions Deutsche suggests the next target for gold is US$1,455 per ounce, a price is doesn't consider excessive when compared to other commodities such as oil and copper. <\/p>\n
\n\tFor the gold price to represent a bubble Deutsche Bank suggests prices would need move beyond the US$2,000 per ounce level. <\/p>\n","protected":false},"excerpt":{"rendered":"
A glance through the latest expert views and predictions about commodities, with UBS lifting its oil price forecasts and positives identified for coal, mineral sands, copper and gold prices.<\/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":[23,89,24,88,22],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/57555"}],"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=57555"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/57555\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=57555"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=57555"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=57555"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}