##{"id":61096,"date":"2012-12-20T10:21:06","date_gmt":"2012-12-19T23:21:06","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2012\/12\/20\/material-matters-iron-ore-copper-and-lower-lng-prices\/"},"modified":"2012-12-20T10:21:06","modified_gmt":"2012-12-19T23:21:06","slug":"material-matters-iron-ore-copper-and-lower-lng-prices","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2012\/12\/20\/material-matters-iron-ore-copper-and-lower-lng-prices\/","title":{"rendered":"Material Matters: Iron Ore, Copper And Lower LNG Prices"},"content":{"rendered":"

\n\t– Exports lift iron ore
\n\t– Coal prices on the move
\n\t– Copper costs crimping production
\n\t– Lower LNG prices ahead<\/strong><\/p>\n

\n\t
\n\tBy Andrew Nelson<\/p>\n

\n\tIt was just September when iron ore prices were below $90\/t and just three months later we’re looking at prices in the $130\/t neighbourhood<\/span> after a 7% lift over the past week. With prices now back to where we were in July, brokers are turning a little more optimistic on this crucial bulk metal.<\/p>\n

\n\tAnalysts at UBS point out October export data show iron ore trade lifted 8% to a new record-high of 44.2Mt\/month, bouncing strongly out of dead September. It’s this big bounce in trade that explains the lift in spot prices, says the broker. The analysts speculate that much of the thanks need to go to China, with buyers back from October holidays with cheque<\/span> books in hand and likely optimistic about the change in Government.<\/p>\n

\n\tThe broker expects iron ore trade flows will expand leading up to Christmas holiday, with steel mills stocking up before snow starts to fall and ahead of the usual H1<\/span> seasonal lift in steel production rates. On current forecasts, UBS expects to see a 2013 average iron ore price of $132.20\/t, slipping a bit to $128.91\/t in FY14<\/span>.<\/p>\n

\n\tMacquarie is on the same page, predicting an FY13<\/span> price around the $130\/t level, with Q1 prices as high as $140\/t, as iron ore progresses though a classical V-shaped recovery.<\/p>\n

\n\tThe export outlook for met-coal is far less encouraging, with October export levels down 10% on September. UBS thinks it’s looking pretty clear that 2012 will be the worst export year in the last four on the back of declining BHP<\/span> Billiton<\/span> ((BHP<\/span>))-Mitsubishi Alliance output and the continuing trend-decline in Japan's met-coal imports.<\/p>\n

\n\tThermal coal is another story, with month-on-month trade up 10% in October to a record-high. The broker assumes this is mostly due to winter restocking in China and stable buying by Japan, Korea and Taiwan on the back of relatively low thermal coal prices. UBS expects volumes to continue to lift through November and December, with flows then moderating into the New Year.<\/p>\n

\n\tMacquarie also took a close look at copper earlier this week, noting that unlike iron ore and aluminium<\/span>, where moderating demand growth over the coming years will provide opportunities for new lower-cost projects to displace high-cost cyclical supply, most new copper projects continue to face challenges and tend to be dilutive to the existing asset base. As such, additional copper supply is much more likely to come in towards the top end of the existing price curve, or not at all.<\/p>\n

\n\tOn the broker’s numbers, between the 90th<\/span> and 100th<\/span> percentile of the copper curve is extremely steep, and these steep costs should underpin the copper price over the coming years and also means we’ll likely not see the price collapse many expect. Or so says Macquarie. The broker sees support at level above $7,000\/t and if prices do hit this point, the broker believes those with incumbent assets should be in a very good position, that is if asset depletion is not excessive, or cost inflation to too severe. However, large, low-cost copper mines would also be looking good in this environment as well.<\/p>\n

\n\tSwitching to tin, CIMB<\/span> believes fundamentals will probably improve in the short term, noting production remains constrained despite higher trending prices. On the demand side, CIMB<\/span> notes that there are some signs emerging from China that demand for solder and tin is picking up.<\/p>\n

\n\tThe broker expects the market to remain in deficit for the foreseeable future and given the improving demand environment coupled with supply these constraints, there broker sees continued upward pressure on prices. However, at some point these improving conditions will lead to the reactivation of previously curtailed production, increased supply and a moderating market. But not soon, thinks CIMB<\/span>.<\/p>\n

\n\tLastly, we note Citi<\/span> has recently cut its long-term LNG prices given the prospect for a much more diverse supply base over the longer-term as more and more development gets underway in North America, East Africa, the Mediterranean and of course across Asia. Heck there’s even a good chance we’ll see the Chinese producing significant quantities of shale gas not too far down the track. The broker sees this glut of emerging optionality<\/span> reducing customer appetite to contract at traditional Asian LNG pricing.<\/p>\n

\n\tYet while the broker thinks Asian LNG contract pricing has peaked for now, it also believes major LNG price declines are unlikely. One reason is that some of the speculative price curves been bandied about are simply too low to support production. The broker also sees a large demand coming from China, which is a buyer at higher price slopes. Lastly, the broker sees Chinese and Japanese continuing to acquire stakes in high-cost, long dated Australian LNG assets like Browse, which won’t even make it to FID without relatively robust LNG pricing.<\/p>\n

\n\tStill, the cut to Macquarie’s long-term Asian LNG price does reduce valuations across the domestic LNG sector. As such, the broker has lowered its expectations for Woodside’s ((WPL<\/span>)) Pluto and NW Shelf, seeing earnings forecasts cut by 4% in CY14<\/span>. Otherwise, near-term earnings are largely unaffected across the sector.
\n\t <\/p>\n

\n\tFind out why FNArena<\/span> subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"