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Asia metals and mining
Commodities forecasts changes
We remain bullish on the short- and medium-term outlook
As we head into FY11 we remain positive on global as well as Chinese demand.
When it comes to the relevant commodities in Asia, our commodities team
remains particularly bullish on copper, coking coal and thermal coal. When
it comes to the steel sector, we are more positive in the shorter term, given the
Chinese restocking situation; however, we believe that the real fundamental
story for steel will not eventuate until the back of FY11 and into FY12. Base
metals in general still look relatively good, and we have made some large
changes to our gold pricing forecasts, given the strength in price over FY10.
Key changes that have been made relate to thermal and coking coal, copper,
gold and aluminium (in the shorter term).
Key investment calls across the Asian region
Coal – Asean names see the big upgrades, we focus investment there
Our higher global coal price assumptions led us to raise our Asean earnings
forecasts by 17–31% for 2011 and 2012, making us ~35% ahead of the
consensus for 2011 and 2012. Consequently we raise our price targets by 33%.
Our key picks in the sector include Harum, Straits Asia and Adaro.
Elsewhere in the region we like Gujarat NRE and Mitsubishi for their coking
coal exposure. China Coal is our preferred Chinese name.
Steel – Looking better into FY11 but still a trading sector in 1H11
We are bullish on regional steel stocks in 1Q11. We believe investors are
generally underweight, and while the tightness in iron ore and coking coal
markets is well known, the rapid increase in steel prices is surprising investors
as the steel industry has been in a dire condition for some time now. With
earnings upside currently in the market we focus on a few key names. Key
picks in the flat products space are Tata and we upgrade Angang while
Dongkuk remains a good value play in Korea.
W think base metals offer value, particularly in copper
Global growth continues to surprise us on the upside and we think this will help
to drive base metals prices higher. Our preferred metals include copper and gold
while we expect nickel and zinc to underperform in the shorter term. Our key
picks across the region are Sterlite, Sumitomo Metal and Mining, Jiangxi
Copper and Real Gold.
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