##{"id":59208,"date":"2011-11-24T10:43:00","date_gmt":"2011-11-23T23:43:00","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2011\/11\/24\/material-matters-further-volatility-in-prices-iron-ore-expectations-lowered\/"},"modified":"2011-11-24T10:43:00","modified_gmt":"2011-11-23T23:43:00","slug":"material-matters-further-volatility-in-prices-iron-ore-expectations-lowered","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2011\/11\/24\/material-matters-further-volatility-in-prices-iron-ore-expectations-lowered\/","title":{"rendered":"Material Matters: Further Volatility In Prices, Iron Ore Expectations Lowered"},"content":{"rendered":"

\n\t– NAB expects further weakness in commodity prices this year
\n\t– A modest recovery forecast for 2012
\n\t– Danske<\/span> Bank trims commodity price estimates
\n\t– Iron ore price expectations lowered<\/strong><\/p>\n

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

\n\tIn aggregate, base metal prices in October were 18% lower than the levels at the end of 2010 according to National Australia Bank. In real terms the outcome was even worse, with prices 21% lower. This reflects a risk-off attitude on the part of investors, which NAB attributes to ongoing turmoil in the global economy.<\/p>\n

\n\tFor October, lead and copper prices fell the most heavily among the industrial metals, while prices for aluminium<\/span> and nickel softened slightly. Given no convincing solution to the European sovereign debt crisis is likely shorter term, NAB expects volatility in metal markets will continue for several months.<\/p>\n

\n\tIn general, NAB's view is while supply for most metals will pick up over the next few years and demand should slow somewhat, fundamentals for the base metals will remain broadly positive. This generates an expectation prices will stay elevated relative to historical levels.<\/p>\n

\n\tA number of factors have supported base metal prices in recent weeks in NAB's view, including improved GDP outcomes for the US and Japan in September and solid retail sales for the former in October.<\/p>\n

\n\tWhile industrial activity in many developed economies has slowed in recent months, NAB suggests the deceleration of growth appears to have bottomed out for now given the support offered by Japan and the US. <\/p>\n

\n\tGrowth in developed economies should still soften further but NAB has for some time taken the view continued strong demand from emerging economic will be enough to offset this softer developed economy demand.<\/p>\n

\n\tBut even the developing economies have shown some signs of slowing of late, which NAB notes is causing some central banks to take more of a wait and see approach with respect to normalising<\/span> interest rates.<\/p>\n

\n\tChina's outlook remains the most important and here NAB notes internal risks to the economy appear to be mounting. This a reflection of the pressure of tight monetary conditions and government sanctions on the property sector. Despite this, NAB expects Chinese demand for base metals will remain generally robust, in part because buyers have taken advantage of lower prices. <\/p>\n

\n\tOn the supply side, NAB notes industrial actions continue to play a large role, particularly for copper given ongoing issues at the Grasberg<\/span> mine in Indonesia. In the nickel market in contrast increased production is expected in coming months as new projects come on stream <\/p>\n

\n\tNAB notes weekly data indicates stock rebuilding of aluminium<\/span> and copper has ceased in recent weeks, while stocks of nickel and zinc have fallen and lead stocks have surged. Overall, stock levels are elevated in comparison to levels prior to the GFC<\/span>.<\/p>\n

\n\tWith the market outlook still full of risks, NAB sees an uncertain near-term outlook for commodity prices. Fundamentals remain relatively favourable<\/span> however, something the bank expects will help sustain prices close to current levels in coming months. <\/p>\n

\n\tNAB's Base Metals Price Index is forecast to fall by around 13.5% over the final quarter of this year, before an expected rise in the index of around 7% in 2012. <\/p>\n

\n\tDanske<\/span> Bank shares the view commodity prices are likely to struggle to find direction in coming quarters, also agreeing with NAB this will be a reflection of uncertainty in relation to the global economic growth outlook and the debt issues in Europe.<\/p>\n

\n\tBut Danske<\/span> Bank suggests a far too negative scenario with respect to global growth is now expected in financial and commodity markets. As well, there are other supportive factors for commodity prices emerging in the view of Danske<\/span>.<\/p>\n

\n\tThese include the expectation market balances in the likes of copper, oil, corn and soy beans will tighten in 2012. As well, Danske<\/span> sees aggressive monetary policy being pursued by the US Federal Reserve, with a further easing still a clear possibility. This could weaken the US dollar, which would be supportive for commodity prices. <\/p>\n

\n\tLooking to 2012, Danske<\/span> Bank expects both the US and Chinese economies will recover in 2012, de-coupling somewhat from an expected recession in the eurozone<\/span>. The US economy is forecast by Danske<\/span> to grow by 1.8% this year and 2.5% in 2012, which is above consensus estimates of 1.7% and 2.1% respectively. <\/p>\n

\n\tTo account for revised global growth expectations of 3.8% this year and 4.0% in 2012, Danske<\/span> Bank has lowered commodity price forecasts. The revisions for next year are relatively modest as Danske<\/span> Bank continues to expect a price recovery for most commodities in the second half of 2012.<\/p>\n

\n\tIn regard to oil, Danske<\/span> suggests Brent Crude could trade in a range of US$105-$115 per barrel for some time, as while Libyan production is easing fears of a shortage there are still geopolitical issues the market is dealing with. By the second half of 2012 fundamentals should tighten, pushing prices to US$120 per barrel by the end of next year. <\/p>\n

\n\tShort-term Danske<\/span> Bank suggests risks are primarily to the downside given the potential for demand growth to be weaker than forecast. But assuming global growth meets the bank's forecasts, Danske<\/span> sees scope for prices to move higher in the medium-term. Forecasts now stand at US$112 per barrel for Brent crude in 2012, down from US$114 per barrel previously. <\/p>\n

\n\tIn the base metals Danske<\/span> Bank notes current prices imply poor to no recovery in 2012, but risks remain to the downside shorter-term given the possibility of a further escalation in the eurozone<\/span> crisis. These risks sees reductions to estimates, meaning lower 2012 averages overall when compared to previous forecasts.<\/p>\n

\n\tDanske<\/span> Bank expects copper will outperform in relative terms thanks to steady demand from China given signs the de-stocking evident for much of this year may be coming to a close as lower prices encourage more buying. <\/p>\n

\n\tThe aluminium<\/span> picture is not as clear, as Danske<\/span> Bank notes while the metal has seen similar risk aversion pressures as copper, market fundamentals for the metal are less supportive given production has tended to exceed world consumption.<\/p>\n

\n\tIn terms of actual price forecasts, Danske<\/span> Bank expects copper prices will average US$8,844 per tonne<\/span> this year and US$8,625 per tonne<\/span> in 2012, while aluminium<\/span> is forecast to average US$2,422 per tonne<\/span> this year and US$2,275 per tonne<\/span> next year. Forecasts for 2012 are down from US$9,313 per tonne<\/span> for copper and US$2,525 per tonne<\/span> for aluminium<\/span>.<\/p>\n

\n\tIn zinc Danske<\/span> is forecasting annual average prices of US$2,221 per tonne<\/span> this year and US$2,125 per tonne<\/span> next year, while nickel is expected to average US$22,941 per tonne<\/span> in 2011 and US$20,500 per tonne<\/span> in 2012.<\/p>\n

\n\tTo account for lower forecast demand growth, JP Morgan has lowered its iron ore price forecasts by 10-15% over the next five years. For the market overall, a still tight supply side and the expectation high cost Chinese production will keep its place in the market should support prices above normal levels for some time. But JP Morgan expects weaker global growth to limit demand, so forcing prices down from previous levels.<\/p>\n

\n\tFor 2011 the broker's price forecast has been reduced by 6% to US$167 per tonne<\/span>, while in 2012 a 16% reduction sees a new annual price forecast of US$147.50 per tonne<\/span>. In 2013 JP Morgan expects a slight recovery to an average price of US$150 per tonne<\/span>, while there is no change in the long-term price forecast of US$80 per tonne<\/span>.<\/p>\n

\n\tThe changes to iron ore forecasts impact on earnings expectations for Australian iron ore stocks, JP Morgan's estimates falling by 20-30% for the pure plays and by 10-20% for the more diversified companies.<\/p>\n

\n\tValuations have also fallen by 10-20% for the pure plays and by 9-10% for the diversifieds<\/span>. JP Morgan retains a preference for Rio Tinto ((RIO)) over BHP<\/span> Billiton<\/span> ((BHP<\/span>)) among the diversifieds<\/span>, seeing better relative value at current levels. Ratings reflect this, Rio Tinto rated as Overweight and BHP<\/span> Billiton<\/span> as Neutral.<\/p>\n

\n\tAmong the pure plays JP Morgan continues to rate both Fortescue<\/span> ((FMG<\/span>)) and Mount Gibson ((MGX<\/span>)) as Overweight, seeing both as the cheapest in the sector based on revised earnings expectations.<\/p>\n

\n\tThe only change in rating is for Gindalbie<\/span> ((GBG<\/span>)), where JP Morgan has moved to a Neutral rating from Overweight previously given Gindalbie's<\/span> position as the most leveraged stock to iron ore prices under the broker's coverage.<\/p>\n

\n\tNo other changes to ratings mean JP Morgan continues to rate both Aquila<\/span> Resources ((AQA<\/span>)) and Atlas Iron ((AGO)) as Neutral, while Murchison<\/span> Metals ((MMX<\/span>)) is rated as Underweight.<\/p>\n

\n\tBy way of comparison, Sentiment Indicator readings for these stocks according to the FNArena<\/span> database stand at 1.0 for Rio Tinto and Fortescue<\/span>, 0.8 for BHP<\/span>, Gindalbie<\/span> and Atlas Iron, 0.3 for Mount Gibson, minus 0.3 for Aquila<\/span> and minus 0.7 for Murchison<\/span>. <\/p>\n","protected":false},"excerpt":{"rendered":"

A glance through the latest expert views and predictions about commodities, with experts forecasting further volatility in commodity markets and JP Morgan lowering its iron ore expectations.<\/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":[23,27,89,24,41,88,26],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/59208"}],"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=59208"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/59208\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=59208"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=59208"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=59208"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}