##{"id":59786,"date":"2012-04-12T15:55:13","date_gmt":"2012-04-12T05:55:13","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2012\/04\/12\/material-matters-outlooks-updated-gold-oil-and-bulks\/"},"modified":"2012-04-12T15:55:13","modified_gmt":"2012-04-12T05:55:13","slug":"material-matters-outlooks-updated-gold-oil-and-bulks","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2012\/04\/12\/material-matters-outlooks-updated-gold-oil-and-bulks\/","title":{"rendered":"Material Matters: Outlooks Updated, Gold, Oil And Bulks"},"content":{"rendered":"<p>\n\t<strong>&nbsp;&#8211; Commodity market outlooks updated<br \/>\n\t&nbsp;&#8211; Recent gold price weakness an entry point?<br \/>\n\t&nbsp;&#8211; Oil price expectations revised<br \/>\n\t&nbsp;&#8211; Goldman Sachs still positive on iron ore<br \/>\n\t&nbsp;<\/strong><\/p>\n<p>\n\tBy Chris Shaw<\/p>\n<p>\n\tCommodity prices have been stable through March, Barclays Capital attributing this to a range of factors including speculative balances, trade flows and geopolitical issues. All of these appear unstable in their own right in the group&#039;s view.<\/p>\n<p>\n\tThis suggests the risk the current equilibrium breaks down is high, though Barclays sees it as holding for the time being as gradual improvements in the global growth outlook should be the major theme in commodity markets in coming weeks.&nbsp;<\/p>\n<p>\n\tAn improved growth outlook should <span class=\"scayt-misspell\">favour<\/span> the base metals, while Barclays has also become slightly more bullish on the outlook for agricultural commodities given recent downgrades to US stock levels. Oil pries are expected to ease slightly in the June quarter but Barclays doesn&#039;t see the downside potential as significant.&nbsp;<\/p>\n<p>\n\tThe main <span class=\"scayt-misspell\">overweights<\/span> for Barclays for the coming month are soybeans, copper, crude oil, corn and <span class=\"scayt-misspell\">aluminium<\/span>, while the group&#039;s largest <span class=\"scayt-misspell\">underweights<\/span> are in gold, US natural gas and heating oil.&nbsp;<\/p>\n<p>\n\tLooking more closely at gold, Barclays suggests while prices have <span class=\"scayt-misspell\">stabilised<\/span> in recent weeks the question remains how solid is the floor around US$1,600 per ounce being set by physical demand.&nbsp;<\/p>\n<p>\n\tWhile Chinese demand is starting to pick up the response is only notable on the back of sharp price drops, Barclays also noting imports of gold into Turkey have more than halved relative to the previous quarter.<\/p>\n<p>\n\tAlso important is strike action is causing the closure of <span class=\"scayt-misspell\">jewellery<\/span> stores across India, which implies a drop in imports in that market of anything from 20% to more than 30% according to Barclays. Indian imports should recover in the June quarter as stores re-open, something expected to boost physical demand for the metal.&nbsp;<\/p>\n<p>\n\tThis leads Barclays to conclude as the price floor for gold becomes stronger, prices should gain greater traction, especially given the current macro backdrop and some modest investment demand.&nbsp;<\/p>\n<p>\n\tStill on gold, Macquarie notes the price of the metal has diverged from real interest rates since December of last year. To the broker this suggests the <span class=\"scayt-misspell\">ECB<\/span> <span class=\"scayt-misspell\">LTRO<\/span> &#8212;&nbsp;the European version of quantitative easing &#8212;&nbsp;has been bearish for gold. While expecting the gap will close as gold is seen as rising by more than real interest rates come down, Macquarie suggests bridging the gap may be difficult in the near-term.<\/p>\n<p>\n\tMorgan Stanley continues to like gold, seeing recent price weakness as a good entry point given some of the recent selling pressure appears at odds with the still <span class=\"scayt-misspell\">dovish<\/span> outlook of the US Federal Reserve. Negative real interest rates should remain in place for some time, which should prove supportive to gold prices.&nbsp;<\/p>\n<p>\n\tSupporting this view is the fact the latest correction has not re-tested the late December 2011 low, while the price weakness has encouraged some additional physical demand for the metal. Supply constraints also remain in place, enough for Morgan Stanley to forecast an average gold price this year of US$1,825 per ounce and in 2013 of US$2,175 per ounce.<\/p>\n<p>\n\tFor silver Morgan Stanley is similarly positive given the expectation of an extended period of negative real interest rates. While a weaker global growth outlook may cut fabrication demand, Morgan Stanley still expects prices will rise, from an expected average of US$35.10 per ounce this year to US$41.83 per ounce in 2013.<\/p>\n<p>\n\tAmong the base metals Morgan Stanley is bearish on <span class=\"scayt-misspell\">aluminium<\/span> given a large supply overhang, though prices are still expected to rise given the pressure of persistent increases in production costs. Supply trends in China remain the key to <span class=\"scayt-misspell\">aluminium<\/span> prices in the broker&#039;s view, with&nbsp;forecasts calling for an average price of US$1.03 per pound this year and US$1.11 per pound in 2013.<\/p>\n<p>\n\tCopper remains the preferred base metal&nbsp;for Morgan Stanley given two more years of market deficits are expected. This view is supported by signs demand from both the US and Europe is strengthening. Forecasts for copper stand at US$3.80 per pound this year and US$4.10 per pound next year.<\/p>\n<p>\n\tNickel prices will continue to be driven by the success of otherwise of large <span class=\"scayt-misspell\">laterite<\/span> nickel project start-ups, which should be enough to drive the market to a surplus according to Morgan Stanley. Given still poor demand prospects the broker expects average prices of US$9.12 per pound this year and US$9.89 per pound in 2013.<\/p>\n<p>\n\tThe market is likely to take a few quarters to work though high zinc inventories according to Morgan Stanley, which the broker suggests means limited scope for price upside in the meantime. Oversupply in the lead markets presents a similar price outlook.&nbsp;<\/p>\n<p>\n\tThis is reflected in Morgan Stanley&#039;s forecasts, which for zinc are for average prices of US$0.91 per pound this year and US$1.00 per pound in 2013, while for lead forecasts stand at US$0.99 per pound and US$1.06 per pound respectively.&nbsp;<\/p>\n<p>\n\tRecent strength in oil prices, and the view markets will remain supported given a sustained risk premium and supply concerns, have seen UBS lift its Brent oil price forecasts. For 2012 the broker now expects Brent prices will average US$112 per barrel, up from US$105 per barrel previously. West Texas Intermediate (<span class=\"scayt-misspell\">WTI<\/span>) prices are forecast to average US$99 per barrel for the year, up from US$98 previously.&nbsp;<\/p>\n<p>\n\tIn UBS&#039;s view the fact Saudi Arabia is producing oil at a 31-year&nbsp;record rate of 10 million barrels per day should deliver a near-term supply overhang, which ordinarily would be enough for prices to fall by as much as US$10 per barrel.<\/p>\n<p>\n\tBut the offset to this production is the increasing likelihood of western sanctions meaning a significant portion of Iran&#039;s exports are shut-in, this at the same time as there are production issues in Syria, Sudan and the North Sea.<\/p>\n<p>\n\tThe changes to forecasts factor in revised expectations for oil market balances going forward, as well as a more optimistic outlook on shale oil production in the US in coming years. The end result is no change to UBS&#039;s long-term Brent price forecast of US$95 per barrel.<\/p>\n<p>\n\tFactoring in the changes means adjustments to earnings estimates across the Australian energy sector, with UBS seeing Oil Search ((<span class=\"scayt-misspell\">OSH<\/span>)) as the largest beneficiary. Woodside ((<span class=\"scayt-misspell\">WPL<\/span>)) also benefits from the fact production at Pluto-1 increases oil price leverage into 2013, while changes to <span class=\"scayt-misspell\">forex<\/span> assumptions have the biggest impact on earnings for <span class=\"scayt-misspell\">Caltex<\/span> ((<span class=\"scayt-misspell\">CTX<\/span>)).<\/p>\n<p>\n\tAmong the major plays, UBS rates Oil Search, Santos and Woodside as Buys, while smaller cap plays to receive the same rating are Tap Oil ((TAP)) and Horizon Oil ((<span class=\"scayt-misspell\">HZN<\/span>)). Among other energy stocks under coverage UBS ascribes Neutral ratings to rates Aurora ((<span class=\"scayt-misspell\">AUT<\/span>)), AWE ((AWE)), Beach Energy ((<span class=\"scayt-misspell\">BPT<\/span>)), <span class=\"scayt-misspell\">Caltex<\/span> and Roc Oil ((ROC)).&nbsp;<\/p>\n<p>\n\tIn the bulks, Goldman Sachs notes minor increases in prices have continued for another week, with metallurgical coal prices responding to supply disruptions from <span class=\"scayt-misspell\">BHP<\/span> <span class=\"scayt-misspell\">Billiton<\/span> ((<span class=\"scayt-misspell\">BHP<\/span>))\/Mitsubishi Alliance strike activity.<\/p>\n<p>\n\tGiven no sign of a hard landing in China, Goldman Sachs maintains a positive outlook for iron ore prices. Supporting this is the fact Chinese iron ore imports rose 5.7% in the March quarter this year relative to the same period last year, while the iron ore price has risen 8% since the start of 2012.<\/p>\n<p>\n\tThermal coal prices are likely to remain range-bound according to Goldman Sachs, as excess tonnage is flowing into China and means spot prices are unlikely to move significantly without any improvement in demand or disruption to supply.<\/p>\n<p>\n\tCommonwealth Bank notes steel rebar futures and iron ore prices tend to be closely correlated, the two rising by 1.2% and 3.8% respectively in the past month. The bank suggests prices are being supported by expected demand in April and May, this as the Chinese construction sector recovers post the winter break.<\/p>\n<p>\n\tThere is a risk the Chinese iron ore market has overshot in expectation of future demand increases, so if this anticipated demand from the construction sector doesn&#039;t <span class=\"scayt-misspell\">materialise<\/span> Commonwealth Bank sees the risk of weaker steel and iron prices in the next two to three months.<br \/>\n\t&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>A glance through the latest expert views and predictions about commodities, with brokers updating commodity market outlooks, revised oil price estimates and a possible entry point for gold.<\/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":[27,89,24,88,22],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/59786"}],"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=59786"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/59786\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=59786"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=59786"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=59786"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}