##{"id":61220,"date":"2013-01-31T14:55:57","date_gmt":"2013-01-31T03:55:57","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2013\/01\/31\/material-matters-iron-ore-coal-copper-aluminium-and-sugar\/"},"modified":"2013-01-31T14:55:57","modified_gmt":"2013-01-31T03:55:57","slug":"material-matters-iron-ore-coal-copper-aluminium-and-sugar","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2013\/01\/31\/material-matters-iron-ore-coal-copper-aluminium-and-sugar\/","title":{"rendered":"Material Matters: Iron Ore, Coal, Copper, Aluminium and Sugar"},"content":{"rendered":"

\n\t-Bulk prices converging on support
\n\t-Iron ore price vulnerable on downside
\n\t-Copper price risk skewed to upside
\n\t-Aluminium<\/span> price to edge up
\n\t-Sugar tussle between India and China<\/strong><\/p>\n

\n\tBy Eva Brocklehurst<\/span><\/p>\n

\n\tBulk commodity prices are converging on cost support after a wild run in 2012, observes Goldman Sachs. Iron ore prices are expected to remain strong with China's current restocking having further to run. Seaborne iron ore is now slightly above the broker's 2013 forecast of US$144\/tonne<\/span> and is considered fairly priced. The broker assesses cost support for iron ore at US$140\/t, with metallurgical coal at US$180\/t and thermal coal at US$90\/\/t. Cyclone Oswald, which brought flooding to Australia's eastern seaboard, is expected to only have modest impact on export volumes. Probably around one million tonnes<\/span>. Goldman expects the metallurgical market will become more balanced this year as marginal producers gradually exit. The forecast for second half metallurgical prices is US$185\/t.<\/p>\n

\n\tANZ<\/span> sees iron ore prices vulnerable to downward pressure heading into Chinese New Year. ANZ<\/span> analysts expect the Queensland floods could convince traders to short iron ore, to offset margin loss by steel mills from a spike in coking<\/span> coal prices. ANZ<\/span> thinks prices should trend down to US$140\/t by the end of this quarter. The analysts note the sharp drop in Baltic Capesize<\/span> freight rates in December, which flags a substantial drop in Chinese iron ore imports in January after record highs in December. Supporting prices, ANZ<\/span> notes iron ore port stocks continue to fall but the analysts warn that a tighter supply backdrop is not necessarily indicative of better prices. ANZ<\/span> thinks spot will ultimately be range bound between US$130 and US$150 per tonne<\/span> for 2013, which doesn't seem too different from the price forecast at Goldman Sachs.<\/p>\n

\n\tIn terms of the floods, CBA<\/span> thinks the key to coal production is the closure of the Blackwater-Moura<\/span> line. Mines that use these lines contribute 22% of world PCI coal exports, 10% to semi-soft seaborne supply and 9% to global seaborne premium coking<\/span> coal markets. Assuming a 2-week delay to production and shipment, CBA<\/span> estimates 3.5mt of exported coal, both thermal and coking<\/span>, will be impacted. However, this is still a much smaller supply cut than during the 2011 floods. A spot price rally may be the result, but CBA<\/span> analysts suspect it will not be extensive, given Chinese buyers are likely to reduce interest ahead of their break (Feb 9-15).<\/p>\n

\n\tIn copper, UBS sees the market close to balance. The analysts note the price is vulnerable to small trading shifts with just a 200,000 tonne<\/span> variation in the supply-demand outlook delivering up to US$1,000\/t shift in the average annual price for 2013-14. The analysts have modeled several scenarios. For upside, this includes labour<\/span> disputes and project delays resulting in a balanced market in 2013 and small surplus in 2014. This would deliver prices of US$8,500\/t and US$7,000\/t respectively. The downside scenario involves faster ramp-up and release of China's inventories. This would result in US$7,000\/t for 2013 and US$5,500\/t for 2014. The analysts find risks to the forecasts are skewed to the upside, mainly because the risk of supply disruption is greater than a positive surprise on the production side. If copper's price holds above the analysts' forecasts then those equities most exposed in Australia include Oz Minerals ((OZL<\/span>)) and Sandfire<\/span> Resources ((SFR)).<\/p>\n

\n\tOn the aluminium<\/span> front, JP Morgan expects modest increases in cash prices over the next two years. This is despite projecting global surpluses in 2013 and 2014. This conundrum reflects the accumulation of inventory in Asia, leaving physical metal more scarce in other regions. Moreover, the analysts do not see the large scale culling of output in emerging markets that OECD producers hoped for. They project that China will add another 2.2 million metric tonnes<\/span> in output this year, with production gains in India and the Middle East as well. The current forecasts for LME<\/span> aluminium<\/span> cash prices are US$2,213 per metric tonne<\/span> on average in 2013 and US$2,363\/mt<\/span> in 2014. These are 10-15% above the current forward curve and this suggests to JP Morgan that consumers should layer in hedges, ahead of a recovery in manufacturing demand.<\/p>\n

\n\tFor sugar, the prospect of an even larger crop as Brazil's harvest finishes strongly continues to ease supply concerns, notes ANZ<\/span>. Therefore, the analysts maintain that the dynamics in Asia hold the key to sugar prices this year. China and India rank in the top three for global consumption and production of sugar. Record imports in 2012 helped rebuild stocks in China and there are expectations of a sharp decline in imports over the next 12 months. However, ANZ<\/span> analysts say the market may be in for a surprise here if it overestimates the pull back in China's imports. China may still be a major buyer. The analysts view is that India will be nearly self sufficient in sugar by mid 2013. So, for the first time since September 2010, it will not be a significant exporter. In summary, a return to a neutral position in India in the sugar trade will be critical to counteracting higher export availability stemming from weaker Chinese demand.<\/p>\n

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