##{"id":59672,"date":"2012-03-19T10:43:48","date_gmt":"2012-03-18T23:43:48","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2012\/03\/19\/material-matters-oil-metals-platinum-and-coal\/"},"modified":"2012-03-19T10:43:48","modified_gmt":"2012-03-18T23:43:48","slug":"material-matters-oil-metals-platinum-and-coal","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2012\/03\/19\/material-matters-oil-metals-platinum-and-coal\/","title":{"rendered":"Material Matters: Oil, Metals, Platinum, And Coal"},"content":{"rendered":"

\n\t– North Sea an issue for oil supply
\n\t– Chinese public housing build to support industrial metals demand
\n\t– Platinum's premium to gold may be retained in 2H12<\/span>
\n\t– Thermal coal forecasts revised
\n\t– Goldman Sachs introduces 2015 earnings forecasts<\/strong>
\n\t <\/p>\n

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

\n\tAs part of its weekly review of commodity markets, Deutsche Bank has updated its views on the crude oil market. The broker notes while the Middle East and Africa remain at the centre<\/span> of supply risk worries thanks to disruptions in the region, the North Sea should also be on the supply risk list.<\/p>\n

\n\tThis reflects a history of production disappointments as well as the fact production last year declined in year-on-year terms by 368,000 barrels per day. This is the largest average fall since 2006 and reflects adverse weather conditions and structural declines.<\/p>\n

\n\tFor Deutsche, downward revisions to North Sea production could impact meaningfully on the global oil balance as production declines would boost the implied call on OPEC crude. This could require high OPEC production relative to previous years to fill the supply gap, which implies a fall in the group's spare capacity levels.<\/p>\n

\n\tOn the industrial metals front, Deutsche expects macro event risks will continue to drive prices. While China has announced a lower target for GDP growth for the year Deutsche has lifted its estimate slightly, reflecting upside from better than expected export growth, improved small business performance and a less severe impact from any real estate market downturn than the market currently perceives.<\/p>\n

\n\tIn 2012 Deutsche expects the Chinese government will start seven million public housing units and complete five million units, while total government spending on public housing will be 15% higher than last year. A resumption of this growth is likely to underpin industrial metals demand in the second half of this year in the view of Deutsche. <\/p>\n

\n\tPlatinum closed at its highest level last week since September of last year, Barclays attributing the recent gains to potential supply disruptions from both power issues and safety related stoppages and actual disruptions at Impala Platinum's operations.<\/p>\n

\n\tTo date, strikes at Impala's Rustenburg<\/span> mine have cost 120,000 ounces of lost output. The outlook is not improving much, as management at the mine has warned April deliveries could be down as much as 50%.<\/p>\n

\n\tAt the same time as production has been disrupted investment demand for platinum has picked up and this combination has tightened the shorter-term market balance in the view of Barclays. Macquarie agrees, estimating the platinum market is currently in a meaningful deficit as investor interest since the start of this year has been strong.<\/p>\n

\n\tDespite this, Barclays expects the market to remain in surplus for the full year, which reflects in part the fact Impala is looking to re-start its operations in coming weeks.<\/p>\n

\n\tThe recent elevated investor interest in platinum exposes prices to some profit taking according to Barclays. Again Macquarie has taken a similar view, pointing out with net longs in platinum not too far from recent highs compared to other metals, prices may experience some headwinds<\/span> shorter-term.<\/p>\n

\n\tThe platinum price may push above the gold price at some point in the June quarter, but a still supportive external backdrop for gold at present suggests platinum is unlikely to regain its premium to gold until the market tightens further in the second half of this year.<\/p>\n

\n\tIn the bulks, Goldman Sachs has revised its outlook for thermal coal prices. Through 2016 price expectations have been lowered, while the broker has lifted its long-term estimate for 2017 and beyond. The changes reflect the lack of weather related supply disruptions during rainy seasons in Indonesia and Australia as well as softening demand in China and mild weather in Europe.<\/p>\n

\n\tGoldman Sachs expects seaborne prices will remain subdued until demand recovers and inventories return to more normal levels, something expected to happen towards the end of the year. New spot price estimates for Goldman Sachs stand at US$110 per tonne<\/span> this year, US$116 per tonne<\/span> in 2013 and US$117 per tonne<\/span> in 2014. The broker's long-term forecast has increased by 10% to US$90 per tonne<\/span>.<\/p>\n

\n\tOne reason for some longer-term caution with respect to thermal coal prices is Goldman Sachs expects the share of thermal coal in the fuel mix will decline over time. Subsequent lower demand growth in the seaborne market will lead to lower prices at some point beyond 2020 .<\/p>\n

\n\tRevised prices have impacted on earnings expectations for coal stocks under coverage by Goldman Sachs, which have flowed through to reductions in price targets. For BHP<\/span> Billiton<\/span> ((BHP<\/span>)) and Rio Tinto ((RIO)) price targets fall to $49.08 and $85.34, down from $49.43 and $85.97 respectively. <\/p>\n

\n\tIn steel, Commonwealth Bank notes Chinese crude steel output accelerated in the first two months of 2012 to an annualised<\/span> rate of 704 million tonnes<\/span>. While the acceleration may be in anticipation of better activity levels from March as northern hemisphere projects re-commence construction, higher output rates appear to reflect the commencement of restocking in China's steel supply chain.<\/p>\n

\n\tAt the same time, CBA<\/span> notes the latest steel industry data shows an early and tentative roll-over in steel inventories in the past few weeks. Should this re-stocking continue, CBA<\/span> suggests steel prices may rally which would likely also lift iron ore and coking<\/span> coal demand and pricing. Such an outcome is consistent with CBA's<\/span> existing expectations.<\/p>\n

\n\tFinally, Goldman Sachs has introduced 2015 earnings per share (EPS) estimates into its models for resource companies under coverage. The introduction of these forecasts has not produced any material changes to models and none of the broker's price targets or ratings have been changed.<\/p>\n

\n\tWhat the data does highlight is which companies under coverage are expected to deliver strong earnings growth in 2015. Among those under coverage, Goldman Sachs expects growth will be most pronounced for Alkane<\/span> ((ALK<\/span>)), Alumina Ltd ((AWC<\/span>)), Aston Resources ((AZT<\/span>)), Base Resources ((BSE)), Bathurst Resources ((BTU)), Evolution ((EVN<\/span>)), Independence Group ((IGO<\/span>)), Newcrest<\/span> ((NCM<\/span>)), Regis Resources ((RRL<\/span>)), Sandfire<\/span> ((SFR)), Whitehaven<\/span> Coal ((WHC<\/span>)) and Western Areas ((WSA<\/span>)).<\/p>\n

\n\tOf these, the key upside risk for Alkane<\/span> according to Goldman Sachs is stronger commodity prices, while the downside risks are centred<\/span> on the long time to production for the Dubbo<\/span> project and the associated financing and construction risks.<\/p>\n

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