Commodities Comment Commodity price forecast changes –Macquarie Research,

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Commodities Comment
Commodity price forecast changes –
A Year of New Highs
Feature article
 In today‟s article, we outline the main changes to our commodity price forecast
profiles. While our views on the direction of most commodity prices are
unchanged, we have become more bullish on the prospects for the level of
thermal & met coal, iron ore and copper in recent months. Taking a six to
twelve month view from current spot prices, we expect nickel, zinc and steel
will significantly underperform relative to other commodities.
 For a summary of our views on the entire base, precious, steel/bulk,
agricultural and energy commodities that we cover, please ask your sales
representative for a copy of the January edition of the Macquarie Commodities
Compendium, released alongside our new forecasts on Monday.
Latest news
 As at the LME rings, base metals prices were largely unchanged, although
cobalt continued its recent rally, rising by 2.4%.
 At the Global Steel 2011 conference in Delhi, the Australian Minerals Council
states that at the current time, of the 57 coal mines in Queensland, 15% are in
full production, 60% are under restriction and 25% are not operating.
Meanwhile, the latest data on the Australian Bureau of Meteorology website
shows the 30 day moving Southern Oscillation Index has continued to
increase. This suggests a strengthening in the La Nina conditions currently
afflicting mine supply regions across the Southern Hemisphere.
 With a significant portion of Queensland supply unavailable to the market,
focus has shifted to whether US tonnages will be able to take up the slack. In
recent months, US export levels have been running at ~44mtpa as compared
with ~55mtpa during 2Q last year. We do expect to see an uplift in US exports
in the coming months, as „crossover coal‟ comes back to the markets, however
a combination of winter weather restrictions, increased domestic consumption
and static mine output will prevent the chain running at full capacity. US
producer Alpha Natural Resources boosted its 2011 met coal expectations by
10% last Friday to ~12.5mt on strengthening demand conditions.
 The China Electricity Council (CEC) has reported that Chinese power
consumption was up 14.6% to 4.19 trillion kWh. Heavy industry accounted for
2.57 trillion kWh, or 61.3% of total consumption. By the end of 2010, power
capacity expanded 10.1%YoY to 962.2GW, with thermal capacity of 706.63
GW, or 73.5%. The CEC estimated that the Coal burn at thermal units was
335g/kWh of coal equivalent during the year, down 5g on last year.
 A number of media reports have suggested that Chinese banks lent around
Rmb500bn in the first week of 2011, which if true was around the Rmb480.7bn
of spend over the whole of December 2010. For the full year 2010, lending was
Rmb7.95tr, above the government‟s target of Rmb7.5tr. Chinese commodity
demand should be supported by continued to levels of lending and strong
company profitability in 2011, in spite of the government‟s attempts to rein in
the former.