##{"id":58613,"date":"2011-08-04T10:29:30","date_gmt":"2011-08-04T00:29:30","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2011\/08\/04\/material-matters-precious-metals-iron-ore-aluminium-copper-and-energy\/"},"modified":"2017-01-30T13:45:40","modified_gmt":"2017-01-30T02:45:40","slug":"material-matters-precious-metals-iron-ore-aluminium-copper-and-energy","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2011\/08\/04\/material-matters-precious-metals-iron-ore-aluminium-copper-and-energy\/","title":{"rendered":"Material Matters: Precious Metals, Iron Ore, Aluminium, Copper And Energy"},"content":{"rendered":"

\n\t– Analyst poll suggests precious metal prices can rise further
\n\t– Copper production continues to disappoint
\n\t– Aluminium<\/span> market fundamentals currently positive
\n\t– Indian exports bans a boost for iron ore
\n\t– Potential energy market catalysts<\/strong><\/p>\n

\n\tBy Chris Shaw<\/p>\n

\n\tSince the end of 2008 gold has enjoyed consecutive positive quarterly returns on both a spot and total return basis. As Deutsche Bank notes, this is the longest period of such returns since gold prices were floated at the beginning of the 1970s<\/span>.<\/p>\n

\n\tIn Deutsche's view, as long as the Fed continues to delay monetary tightening, US real interest rates stay negative and the US dollar stays weak, gold prices should continue to move higher. This is a view Deutsche has had since the start of this year, when the broker lifted its gold price forecast to US$2,000 per ounce and silver forecast to US$50 per ounce.<\/p>\n

\n\tEven allowing for a market-friendly resolution to the US debt issue and a recovery in real US economic data that could prompt a correction in the gold price, Deutsche sees a number of the forces that have driven gold since 2009 as remaining intact.<\/p>\n

\n\tAs Deutsche points out, any debt resolution won't cure the longer-term need to to reduce the deficit to prevent a more severe downgrade of US sovereign debt. Such an outcome would likely see a subsequent disorderly sell-off in US Treasuries.<\/p>\n

\n\tThe absence of a long-term debt plan should maintain gold's appeal as a way to protect against events in the US and Europe. When the fact the US has negative real interest rates at present and the US dollar is weak is factored into the equation, Deutsche continues to see gold trading as high as US$2,000 per ounce by the third quarter of next year.<\/p>\n

\n\tWhat could also prove supportive for gold prices is, as Macquarie notes, South African gold miners have joined their coal mining counterparts in instigating industrial action. The issue may yet spread to the platinum sector, as Macquarie notes discussions with respect to wage gains are yet to be settled. <\/p>\n

\n\tBarclays notes this spectre<\/span> of industrial action has been enough to date to offset demand concerns for PGMs<\/span>, even though palladium flows for the year have now slipped into negative territory. Such demand concerns may temper price gains shorter-term, but Barclays Capital suggests fundamentals remain constructive enough to see prices extend their gains over the longer-term.<\/p>\n

\n\tGenerally for the precious metals, Barclays points out a recent analyst poll shows a positive view for the sector, with consensus prices for all except platinum expected to gain momentum in the second half of this year. There remains scope for further gains in 2012. According to Barclays, silver remains the precious metal with the least fundamental support, making it most susceptible to price corrections.<\/p>\n

\n\tAverage price forecasts according to the poll are US$1,515 per ounce this year and US$1,620 per ounce next year for gold, while for silver the poll averages stand at US$36.44 and US$38.64 per ounce this year and next. <\/p>\n

\n\tFor platinum the poll found average price expectations for platinum of US$1,722 per ounce this year and US$1,895 per ounce in 2012, while for palladium the poll averages stood at US$879 per ounce and US$867 per ounce respectively. <\/p>\n

\n\tTurning to copper, Barclays notes production of the red metal has been weaker than expected so far this year, 2011 now on track to be one of the weakest from a supply perspective since the mid 1990s<\/span>.<\/p>\n

\n\tBarclays had factored in a mine disruption allowance of 3.5% and a refined disruption allowance of 3% for its numbers this year, but notes year-to-date the actual disruptions have been 5.4% and 4.5% accordingly. Macquarie notes more than 75% of its 2011 production disruption allowance for copper has already been used up.<\/p>\n

\n\tThis reflects in part an ongoing decline in head grades, Barclays noting the decline in output at Escondida<\/span>, the world's largest mine, has been bigger than expected thanks to lower grades being mined. The Antamina<\/span> mine has delivered a similar story. Elsewhere, technical issues at new mines such as Esperanza have meant further reductions to production expectations.<\/p>\n

\n\tAt the same time Barclays notes scrap discounts are narrowing in the copper market, which is a signal supply is becoming tighter. A continuation of this trend will make it tougher for growth in refined output to maintain its 1H11<\/span> pace of around 5%.<\/p>\n

\n\tAdding all this up, Barclays suggests copper production may struggle to grow at all this year. So while consumption is also slowing, the outlook is for a tightening in copper market balances in coming months.<\/p>\n

\n\tOver in the aluminium<\/span> market, Citi<\/span> notes apparent demand in June was very high, running at around 8-9% in annualised<\/span> terms. This reflects ongoing demand strength from the auto and can markets and possibly some precautionary stock-building given the threat of power cutbacks for Chinese producers.<\/p>\n

\n\tWhile this suggests a positive outlook Citi<\/span> is more cautious, noting leading indicators for major industrial economies suggest the second half of 2011 is starting from a weak base. While Citi<\/span> takes the view global industrial production may not weaken too much more if Western governments can work through their debt issues without too much impact on business and consumer confidence, aluminium<\/span> demand remains strongly correlated to the Industrial Production cycle. <\/p>\n

\n\tTo reflect this, Citi<\/span> is forecasting average annual prices for aluminium<\/span> of US$2,701 per tonne<\/span> this year, US$2,688 per tonne<\/span> in 2012 and US$2,598 per tonne<\/span> in 2013.<\/p>\n

\n\tAlso on aluminium<\/span>, Macquarie points out Chinese aluminium<\/span> prices surged by nearly 5% last week. The gains were, in the broker's view, a reflection of strong demand and re-stocking activity as buyers become increasingly concerned about securing material.<\/p>\n

\n\tAs the physical aluminium<\/span> market has tightened Macquarie notes speculative activity on the SHFE<\/span> has increased significantly. Macquarie also sees this as a reflection of speculation over the possibility of power cuts impacting Chinese production, though the broker's view is any cuts made by authorities will be very mild.<\/p>\n

\n\tLooking ahead, Macquarie suggests aluminium<\/span> prices are likely to stay range-bound with the upper limit around US$2,800 per tonne<\/span> on the LME<\/span>. This is based on the view while current market fundamentals are positive, there remains the threat of additional Chinese capacity coming on stream over the medium-term.<\/p>\n

\n\tThis overhang is likely to make aluminium<\/span> producers active sellers as prices rise. Macquarie suggests any weakening in fundamentals could see a rapid liquidation, something that would again put strong downward pressure on prices.<\/p>\n

\n\tTurning to the bulks, Macquarie suggests iron ore port stocks in China are not what they appear, as while inventory levels have been rising this in part reflects mills holding more stock at port as a way to counter having to pay VAT before it is necessary.<\/p>\n

\n\tThe other point made by Macquarie is while Chinese inventory levels now look extremely high, the country is also importing a significantly larger amount of iron ore than used to be the case. This in itself is enough to push up port inventories. <\/p>\n

\n\tFactoring this in, Macquarie suggests port inventories at present remain within their normal range as inventory is simply being re-positioned in response to tighter credit conditions.<\/p>\n

\n\tBA Merrill Lynch is also bullish on the iron ore outlook, as the market is being buoyed by further Indian export bans. At present the expectation is India will export around 70 million tonnes<\/span> of iron ore, but risk to this number is to the downside in BA-ML's view.<\/p>\n

\n\tAssuming the new ban on exports is sustained, BA-ML expects there will continue to be support for iron ore spot prices even if there is an easing in Chinese demand in the second half of 2011. Longer-term India is expected to end exports by 2017 but BA-ML suggests this could come sooner given ongoing concerns over illegal mining, environmental damage and strong domestic demand.<\/p>\n

\n\tBa-ML<\/span> suggests the most leveraged Australian plays to the iron ore price are Fortescue<\/span> ((FMG<\/span>)), Atlas Iron ((AGO)) and Rio Tinto ((RIO)), with all three companies scoring Buy ratings. BA-ML also has a Buy rating on BC Iron ((BCI<\/span>)), Gindalbie<\/span> ((GBG<\/span>)), Grange Resources ((GRR<\/span>)) and Mount Gibson ((MGX<\/span>)), while BHP<\/span> Billiton<\/span> ((BHP<\/span>)) is rated as Neutral.<\/p>\n

\n\tAverage current daily index prices for iron ore for June, July and the early part of August is US$174 per tonne<\/span>, which Goldman Sachs suggests implies some upside risk to its current 4Q11<\/span> forecast for contract prices of US$165 per tonne<\/span>.<\/p>\n

\n\tAs with BA-ML, Goldman Sachs suggests the fresh export ban put in place in India will add to the upside risk. As well, Goldman Sachs has revised up expectations for Chinese crude steel production this year, which it expects will result in larger iron ore market deficits in both 2012 and 2013. <\/p>\n

\n\tGoldman Sachs now suggests the seaborne market will remain in notional deficit through 2013, while there is potential for the market to remain very tight through 2014 as well. <\/p>\n

\n\tThe energy market has also come under the scrutiny of Goldman Sachs, the broker looking at potential catalysts for the sector over the remainder of 2011. For Woodside ((WPL<\/span>)) the potential catalysts are largely drilling related, as the Noblige-2<\/span> and Xeres-2<\/span> appraisal wells in coming months should go a long way to improving the company's understanding of its resource position in the two leases.<\/p>\n

\n\tAppraisal success has the chance of seeing Woodside progress with respect to an equity LNG train at Pluto, something Goldman Sachs suggests could be very positive for the share price.<\/p>\n

\n\tFor Oil Search ((OSH<\/span>)), drilling at the likes of Hides and Huria<\/span> in coming months could act as catalysts given all are potentially high-impact areas. While drilling at Highlands could impact on any PNG<\/span> LNG Train 3 decision Goldman Sachs expects the market is likely to wait for more certainty around any expansion.<\/p>\n

\n\tHaving recently sanctioned one train at APLNG<\/span>, Origin (ORG)) is likely to try and sign additional customers for APLNG<\/span> Train 2 in coming months. If a second train is sanctioned Goldman Sachs suggests there could be meaningful upside for the Origin share price. <\/p>\n","protected":false},"excerpt":{"rendered":"

A glance through the latest expert views and predictions about commodities with positives identified for precious metals, iron ore and aluminium, disappointments for copper supply and potential energy sector catalysts.<\/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":[23,27,89,24,88,22,26],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/58613"}],"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=58613"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/58613\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=58613"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=58613"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=58613"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}