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UBS lifts Cu, Ni, Zn, iron ore 2014 price outlook

UBS analysts advise that the BHP Billion and Rio Tinto are best plays among commodities equities, along with Fortescue, Teck, Cameco, Alumina Ltd., and Umicore.

UBS Global Mining Research has lifted its 2014 commodity price forecasts for copper, zinc, iron ore and nickel this year, but lowered its forecasts for aluminum and PGM.

Meanwhile, UBS analysts also lifted their long-term price forecasts for copper, iron ore and gold.

Copper’s 2014-2015 price forecast has been lifted 5% to US$3.10 per pound to reflect sustained buying by China, while the long-term price has been increased by 15%-20% to $2.95/lb.

Although copper remains one of UBS’ least-preferred commodities, UBS analysts observed, “Copper’s fundamentals appear perfectly balanced for now, between strong, lower risk concentrate supply growth (TC/RCs high/rising) & China’s stable, large buying rate of all copper productions.”

In response to risk around Indonesian exports, the 2014 nickel price has been increased 3% to $6.40 per pound. “Indonesia’s export ban offers upside for alumina & nickel,” the analysts noted. However, the long-time nickel price has been cut to $7.90/lb.

UBS increased zinc’s long-term price by 15% to 98-cents per pound and lifted this year’s price forecast to $1 per pound. “Prices for zinc (galvanizing) & lead (auto-batteries) are now ending higher on tightening fundamentals: prices are lifting among marginal costs of productions; deficits are forecast, reflecting recovering activity & sustained demand in mature economies,” the analysts observed.

“We expect more upside in 2014, not only because mine supply is weak, but because demand growth is improving,” they advised.

Iron ore’s 2014-2018 price forecast profile has been lifted by 8-14%, “largely reflecting the growing risk around Brazil’s troubled supply growth schedule,” said the analysts. This year’s iron ore forecast has been increased to $126 per metric ton, while the long-term price has been increased to $89/t.

While UBS analysts declared that platinum and palladium “remain among our most preferred commodities on both a short- to medium-term basis,” this year it lowered its platinum price forecast to $1,500 per ounce, while the long-term price remained unchanged at $1980/oz. “Despite our positive view on platinum, our previous price expectations were too optimistic,” the analysts advised.

UBS kept its 2014 palladium forecast unchanged at $825/oz, but upgraded price expectations for 2016-2017 at $900/oz. “Palladium’s crowded positioning and ample above ground stocks are currently obstacles to a higher price,” said the analysts. “Recycling remains a threat, given the more palladium-intensive autocatalyst loadings from the late 1990s are now coming back to the market as aging cars are scrapped.”

In their analysis, UBS noted that their changes to the gold and silver price forecasts are restricted to the long-term with 5-20% increases to the 2017-2019 numbers. Long-term gold price is forecast at $1,300/oz, while no change has been made in this year’s prediction of $1,200/oz. “We forecast a gold price of US$1,200/oz, consistent with some producers all-in sustaining cost structures,” said the analysts. “Expect cost cutting, restructuring and potentially equity raisings to follow.”

UBS forecasts an average silver price of $20.5 per ounce this year. The analysts updated the long-term silver price forecast to $23/oz. “A lack of intrinsic market drivers means that silver’s price will continue to track gold’s, “said UBS. “So expect any downward pressure on gold to weigh on silver too. However, given silver’s industrial exposure, it may attract investor interest, and outperform gold on a relative basis.”

As uranium’s spot price continues to flounder at $35/lb, UBS analysts cautioned, “Any upside from here depends on whether or not Japan can get through another summer without its massive nuclear power generating capacity. Longer-term, a lack of supply growth is price supportive (low spot negates project development); Olympic Dam has been shelved; Kazakhstan’s production growth story is slowing.

While UBS analysts anticipate bauxite and alumina may become active trades in the coming months, aluminum “still features massive inventories & unchecked supply growth.” This year’s aluminum price forecast was cut to 80-cents per pound, while the long-term aluminum forecast was lowered to 95-cents per pound. Aluminum is still among the analysts least-preferred commodities.

“The fundamentals of aluminum’s market are actually improving, but the transition rate is sluggish,” said the analysts. Meanwhile, they forecast aluminum’s price outlook will “remain capped by massive inventories.”

The list of UBS most-preferred equities include diversified miners BHP Billiton and Rio Tinto, met coal producer Teck Resources, iron ore company Fortescue, uranium miner Cameco, alumina producer Alumina Ltd. and PGM recycler Umicore. Least-preferred equities including gold miners Newcrest, Newmont and Harmony; copper companies Kazakhmys and Copper Mountain; and aluminum producer Chalco.

iPad Version: Picture – Hot metal pour, Hismelt. Photo courtesy of Rio Tinto

 

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