##{"id":61625,"date":"2013-04-08T14:40:15","date_gmt":"2013-04-08T04:40:15","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2013\/04\/08\/material-matters-coal-mineral-sands-oil-and-bird-flu\/"},"modified":"2013-04-08T14:40:15","modified_gmt":"2013-04-08T04:40:15","slug":"material-matters-coal-mineral-sands-oil-and-bird-flu","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2013\/04\/08\/material-matters-coal-mineral-sands-oil-and-bird-flu\/","title":{"rendered":"Material Matters: Coal, Mineral Sands, Oil And Bird Flu"},"content":{"rendered":"

\n\t-Bearish outlook for coal
\n\t-Mineral sands may recover
\n\t-Oil supply\/demand should tighten
\n\t-Bird flu could be serious<\/strong>
\n\t <\/p>\n

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

\n\tCredit Suisse is bearish on coal. Metallurgical coal markets should be well supplied for at least the next two years and the broker doubts there is the potential for prices to get back above US$200 per tonne<\/span> for some time. Hard coking<\/span> coal contract prices should offer some outperformance<\/span> as buyers are willing to pay to secure a premium product. Nevertheless, 2013 forecasts are unchanged and the analysts have downgraded 2014 price forecasts by 3% to US$178\/t. PCI coal prices have fared better and 2013 price forecasts are upgraded by 4% to US$132\/t.<\/p>\n

\n\tThermal coal, meanwhile, is expected to continue underperforming as a result of the excess of seaborne supply. Demand may be improving but to Credit Suisse it looks insufficient to alter the current situation while producers are not expected to show much discipline in holding back supply. Newcastle coal is expected to average US$90\/t in 2013 and US$93\/t in 2014. Despite the bearish overtones Credit Suisse does not expect the market will be too weak, just generally move lower.<\/p>\n

\n\tIndividual supply factors will remain key drivers of coal stocks in 2013. Credit Suisse believes it will be a tough year for Whitehaven<\/span> ((WHC<\/span>)), New Hope Coal ((NHC<\/span>)) and Yancoal<\/span> ((YAL<\/span>)) and expects YAL<\/span> to be loss making in FY13<\/span> and WHC<\/span> in both FY13<\/span> and FY14<\/span>. NHC<\/span> earnings are expected to be positive but still forecast down 32% in FY14<\/span> and FY15<\/span>.<\/p>\n

\n\tFor mineral sands Credit Suisse thinks there may be a modest recovery in FY13<\/span>. Titanium dioxide feedstock prices may have found a base at higher than expected levels although zircon prices in China look to have started another slide. The analysts find both feedstocks<\/span> are suffering the same problem as steel in China. There is scant evidence of a genuine rebound in construction activity and, hence, demand. Being a major consumer, China's zircon prices are an indicator of global pricing so Credit Suisse has lowered expectations for the first half of 2013 and improvement is expected in the second half and into 2014.<\/p>\n

\n\tIn terms of stocks affected, weakness in Chinese imports of zircon affects Iluka<\/span> ((ILU<\/span>)) and increases the likelihood that the company may curtail mining at Jacinth<\/span> Ambrosia. Credit Suisse sees this as a positive as idling the mine would reduce cash spending. Mineral Deposits ((MDL<\/span>)) is not affected by the changes in the forecasts as the sulphate<\/span> slag market is expected to be balanced.<\/p>\n

\n\tThe ilmenite<\/span> market is hard to ascertain because of supply uncertainties, in Credit Suisse's view. Overall it should be balanced in 2013 and slacken in future years as projects such as Grand Cote and Kwale<\/span> enter production. Base Resources ((BSE)) is also not as affected by the changes to forecasts as these do not impact 2014, when Kwale<\/span> will begin production.<\/p>\n

\n\tJP Morgan has made revisions to the outlook for the energy sector, ahead of production reports. Second half prices for Brent and West Texas Intermediate are increased, based upon stronger consumption and global economic recovery. This is combined with diminished production growth expected out of Libya and Iraq. The supply\/demand balance should therefore tighten. The forecast of US$100-120 a barrel range for 2013 could be pressured if geopolitical tensions increase, such as with North Korea.<\/p>\n

\n\tLonger term the analysts have found support for a US$90\/bbl<\/span> internationally traded oil price, based upon projected demand and analysis of marginal cost of new supply. The broker retains Woodside ((WPL<\/span>)) as the key pick in the majors, because of the potential for capital management and the lower exposure to LNG capex<\/span> costs.<\/p>\n

\n\tJP Morgan thinks the sell-off in mid cap iron ore stocks, around 40% since January, is overdone. Why, because the benchmark iron ore price has only fallen 6%. Even using bearish scenarios such as prices falling to US$80\/t by the end of the year, certain stocks still retain value. Positives are noted for Atlas Iron ((AGO)), Grange Resources ((GRR<\/span>)) and Gindalbie<\/span> Metals ((GBG<\/span>)) and the recommendations have been raised on all three as a result. The broker admits the strongly bullish view is not for the faint hearted, as it is very dependent on the forecasts for iron ore holding up. The benchmark iron ore prices is expected to fall from US$137\/t CFR<\/span> China to US$110\/t by the June quarter of 2014 and to US$100\/t a year later.<\/p>\n

\n\tAnd now for something completely different. Bird flu. The latest outbreak of the virus seems to be quite serious, although BA-Merrill Lynch doesn't find it comparable yet to the SARS<\/span> epidemic in early 2003. SARS<\/span> caused China's GDP growth for one quarter to drop by two percentage points. If this outbreak worsens then the analysts suspect a revision to GDP for the second quarter of 2013 will have to be made, taking forecasts to below 8.0% from the current 8.1%.<\/p>\n

\n\tWhich sectors are likely to be hit if this eventuates? BA-Merrill Lynch notes the previous epidemic's biggest impact was on catering and accommodation, followed closely by transport. The overall impact on the stock market was quite muted but Hong Kong's financial sector felt it more keenly. The Hang Seng<\/span> index dropped from 9123 at the end of February 2003 to the low of 8331 in mid April after the outbreak.
\n\t <\/p>\n

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