mamboni
1st August 2010, 06:09 PM
Time to Accumulate metals and mining stocks-UBS
UBS says thermal coal, copper, zinc and gold are the commodities to watch. But, warns investors to take their time accumulating assets
Author: Dorothy Kosich
Posted: Monday , 26 Jul 2010
RENO, NV -
UBS Investment Research advises investors to accumulate metals and mining stocks, but also to take their time accumulating, "using the inherent volatility of the market to maximize the risk/reward of their investment."
Analysts Julien Garran, Tom Price and Edel Tully said, "Our preferred commodities over the short- to medium-term are thermal coal, copper, zinc and gold. We still like copper and met-coal longer-term."
UBS' top equity picks include BHP Billiton, Rio Tinto, Teck Resources, Sterlite, Newmont, Barrick, Alumina Ltd., Riversdale, Consol Energy and Andro Energy.
Positive View on Gold
"We believe that ongoing pressure on sovereign debt markets, combined with persistent concerns over private sector credit contraction will raise the spectre of debt monetization repeatedly over the next few years," the analysts advised. "We expect that this background will remain very supportive for gold prices over the period, and that informs our above consensus gold price outlook and our inclusion of two gold stocks in our top ten picks..."
In their analysis, the analysts said they believe gold's spotlight will return to focus on European sovereign debt burdens and beyond.
"The fear of further debasement of fiat currencies follows closely," they said. "And in turn we expect the fear trade-very apparent through heightened physical demand for small bars and coins and rising ETF creations-will escalate in H2 2010 and into 2011."
UBS also noted 2010 will be a significant year for official gold sector activity. "While this supply source sold just 41 tonnes net last year, we expect central banks will move from the supply side of the gold fundamental equation to the demand side in 2010."
"Based on current available information, the official sector is very much on track to become net consumers of gold this year," the analysts said. "But in aggregate, we do not expect official sector sales will be voluminous this year; nonetheless this factor provides a very supportive element to the market over the medium term."
In their analysis, UBS noted, "A new trend in 2010 is the movement towards fully allocated physical gold. In H2 and 2011, we expect this type of gold exposure will deepen as new and existing investors diversify a portion of their gold reserves to purely allocated form. Quite simply, such customers are limiting their weight of paper gold exposure. In essence, this is diversification within diversification."
Meanwhile, UBS is upgrading its gold price forecasts across all time horizons. They estimate gold will average $1205 per ounce this year, up from the previously forecast price of $1129/oz. For 2011, UBS gas raised its forecast from $1250 to $1295. The long-term nominal and real gold price has been raised by 13% each to $1060 and $934 respectively.
Silver-Poor Man's Gold Potential
With their expectation that gold will continue to perform strongly this year, UBS is also positive towards silver.
"Like platinum and palladium, silver is exposed to the possible headwinds of a risk adverse environment but we see potential for silver to gain in the role as ‘poor man's gold' or the cheaper alternative to the primary safe haven asset," the analysts said.
"Provided demand for safe haven assets remains heightened, silver stands to benefit. This factor, rather than the metals supply and demand backdrop, should act as silver's primary price determinant."
UBS silver price forecast for 2010 is $18.32 per ounce, up from $17.74 previously. The 2011 estimate of $19.5o is unchanged. Long-term nominal and real price forecasts are now 5-6% higher at $15.04 and $13.25 respectively.
Platinum-Fundamentally Aligned
This year has been a rollercoaster ride for both platinum and palladium, according to UBS.
Nevertheless, following the recent price pullback, "we believe platinum and palladium are now trading much closer to their fundamental values than any other period this year."
UBS lowered its 2010 platinum forecast marginally from $1625/oz to $1,600/oz. "We also estimated a 77 koz surplus this year," the analysts said.
The 2011 forecast now sits at $1700/oz, an increase of $43 per ounce. Long-term nominal and real prices have been revised by 7% to $2069 and $1823.
UBS analysts are more enthusiastic for palladium over platinum for the remainder of this year and are forecasting a 74 koz palladium deficit.
They predicted that palladium will average $470/oz this year, a one percent increase over UBS' previous forecast. The 2011 forecast rises to $525/oz, $35 higher than previously predicted. The long-term forecasts are unchanged.
BASE METALS
Copper-Beyond the Restock
UBS called western world copper demand growth in the first half of this year "spectacular."
With a 400kt deficit in copper this year, UBS now anticipates "a moderate pace of demand growth in the West, solid further improvements in offtake from China and the rest of the emerging markets will support demand growth of 5.5% over the 2010-15 period."
The analysts forecast an average global copper price of $3.20 per pound or US$7,000 per metric ton for a 35% year on year lift.
"We forecast copper prices top lift to US$3.50/lb by mid-2011 ($3.45/lb avg for 2011) as stability in global economic activity improves, supporting trade slows."
The long-term copper price forecast declines to $2.30/lb ($7,272/t).
Nickel-Mostly Supply-side Constraints
UBS forecasts a deficit of 32kt of nickel this year, returning to balance next year, with surpluses from 2012.
The analysts predict an average global nickel price this year of $9.25 per pound or $20,400t, a 39% increase year-on-year.
"Beyond 2010, our forecasts are unchanged; we expect nickel's price to slip to US$9.30/lb in 2011, as Sudbury comes back online; 60ktpa Goro's expansion continues; and NPI production capacity in China lifts further."
Zinc-Lots of Inventory but Need More Mines
In their analysis, UBS noted, "China's robust concentrate imports, coupled with struggling global mine supply, are two emerging themes for the zinc market-presenting upside price risk over the medium-term (2-3 years). But short-term the market's entirely focused on high LME inventory levels, which now weigh heavily on the metal's price."
Zinc fundamentals have global refined metal demand out to 2015 with 5.4% to 6.5% annual growth, from 12.1 Mt in 2010 to 16.1Mt in 2015. UBS forecasts deficits of 120kt to 320kt/year until 2015.
UBS current forecast a 23% year-to-year increase in the average global zinc price of 93-cents per pound (US$2,050/t) this year with zinc's price expected to hit more than $1.10/lb by 2012, as China becomes more dependent on zinc imports, and as under-funded western supply struggles.
Long-term zinc price is forecast to decline beyond 2012 to 75-cents/lb.
http://www.mineweb.co.za/mineweb/view/mineweb/en/page67?oid=108588&sn=Detail&pid=102055
UBS says thermal coal, copper, zinc and gold are the commodities to watch. But, warns investors to take their time accumulating assets
Author: Dorothy Kosich
Posted: Monday , 26 Jul 2010
RENO, NV -
UBS Investment Research advises investors to accumulate metals and mining stocks, but also to take their time accumulating, "using the inherent volatility of the market to maximize the risk/reward of their investment."
Analysts Julien Garran, Tom Price and Edel Tully said, "Our preferred commodities over the short- to medium-term are thermal coal, copper, zinc and gold. We still like copper and met-coal longer-term."
UBS' top equity picks include BHP Billiton, Rio Tinto, Teck Resources, Sterlite, Newmont, Barrick, Alumina Ltd., Riversdale, Consol Energy and Andro Energy.
Positive View on Gold
"We believe that ongoing pressure on sovereign debt markets, combined with persistent concerns over private sector credit contraction will raise the spectre of debt monetization repeatedly over the next few years," the analysts advised. "We expect that this background will remain very supportive for gold prices over the period, and that informs our above consensus gold price outlook and our inclusion of two gold stocks in our top ten picks..."
In their analysis, the analysts said they believe gold's spotlight will return to focus on European sovereign debt burdens and beyond.
"The fear of further debasement of fiat currencies follows closely," they said. "And in turn we expect the fear trade-very apparent through heightened physical demand for small bars and coins and rising ETF creations-will escalate in H2 2010 and into 2011."
UBS also noted 2010 will be a significant year for official gold sector activity. "While this supply source sold just 41 tonnes net last year, we expect central banks will move from the supply side of the gold fundamental equation to the demand side in 2010."
"Based on current available information, the official sector is very much on track to become net consumers of gold this year," the analysts said. "But in aggregate, we do not expect official sector sales will be voluminous this year; nonetheless this factor provides a very supportive element to the market over the medium term."
In their analysis, UBS noted, "A new trend in 2010 is the movement towards fully allocated physical gold. In H2 and 2011, we expect this type of gold exposure will deepen as new and existing investors diversify a portion of their gold reserves to purely allocated form. Quite simply, such customers are limiting their weight of paper gold exposure. In essence, this is diversification within diversification."
Meanwhile, UBS is upgrading its gold price forecasts across all time horizons. They estimate gold will average $1205 per ounce this year, up from the previously forecast price of $1129/oz. For 2011, UBS gas raised its forecast from $1250 to $1295. The long-term nominal and real gold price has been raised by 13% each to $1060 and $934 respectively.
Silver-Poor Man's Gold Potential
With their expectation that gold will continue to perform strongly this year, UBS is also positive towards silver.
"Like platinum and palladium, silver is exposed to the possible headwinds of a risk adverse environment but we see potential for silver to gain in the role as ‘poor man's gold' or the cheaper alternative to the primary safe haven asset," the analysts said.
"Provided demand for safe haven assets remains heightened, silver stands to benefit. This factor, rather than the metals supply and demand backdrop, should act as silver's primary price determinant."
UBS silver price forecast for 2010 is $18.32 per ounce, up from $17.74 previously. The 2011 estimate of $19.5o is unchanged. Long-term nominal and real price forecasts are now 5-6% higher at $15.04 and $13.25 respectively.
Platinum-Fundamentally Aligned
This year has been a rollercoaster ride for both platinum and palladium, according to UBS.
Nevertheless, following the recent price pullback, "we believe platinum and palladium are now trading much closer to their fundamental values than any other period this year."
UBS lowered its 2010 platinum forecast marginally from $1625/oz to $1,600/oz. "We also estimated a 77 koz surplus this year," the analysts said.
The 2011 forecast now sits at $1700/oz, an increase of $43 per ounce. Long-term nominal and real prices have been revised by 7% to $2069 and $1823.
UBS analysts are more enthusiastic for palladium over platinum for the remainder of this year and are forecasting a 74 koz palladium deficit.
They predicted that palladium will average $470/oz this year, a one percent increase over UBS' previous forecast. The 2011 forecast rises to $525/oz, $35 higher than previously predicted. The long-term forecasts are unchanged.
BASE METALS
Copper-Beyond the Restock
UBS called western world copper demand growth in the first half of this year "spectacular."
With a 400kt deficit in copper this year, UBS now anticipates "a moderate pace of demand growth in the West, solid further improvements in offtake from China and the rest of the emerging markets will support demand growth of 5.5% over the 2010-15 period."
The analysts forecast an average global copper price of $3.20 per pound or US$7,000 per metric ton for a 35% year on year lift.
"We forecast copper prices top lift to US$3.50/lb by mid-2011 ($3.45/lb avg for 2011) as stability in global economic activity improves, supporting trade slows."
The long-term copper price forecast declines to $2.30/lb ($7,272/t).
Nickel-Mostly Supply-side Constraints
UBS forecasts a deficit of 32kt of nickel this year, returning to balance next year, with surpluses from 2012.
The analysts predict an average global nickel price this year of $9.25 per pound or $20,400t, a 39% increase year-on-year.
"Beyond 2010, our forecasts are unchanged; we expect nickel's price to slip to US$9.30/lb in 2011, as Sudbury comes back online; 60ktpa Goro's expansion continues; and NPI production capacity in China lifts further."
Zinc-Lots of Inventory but Need More Mines
In their analysis, UBS noted, "China's robust concentrate imports, coupled with struggling global mine supply, are two emerging themes for the zinc market-presenting upside price risk over the medium-term (2-3 years). But short-term the market's entirely focused on high LME inventory levels, which now weigh heavily on the metal's price."
Zinc fundamentals have global refined metal demand out to 2015 with 5.4% to 6.5% annual growth, from 12.1 Mt in 2010 to 16.1Mt in 2015. UBS forecasts deficits of 120kt to 320kt/year until 2015.
UBS current forecast a 23% year-to-year increase in the average global zinc price of 93-cents per pound (US$2,050/t) this year with zinc's price expected to hit more than $1.10/lb by 2012, as China becomes more dependent on zinc imports, and as under-funded western supply struggles.
Long-term zinc price is forecast to decline beyond 2012 to 75-cents/lb.
http://www.mineweb.co.za/mineweb/view/mineweb/en/page67?oid=108588&sn=Detail&pid=102055