A glance through the latest expert views and predictions about commodities: Goldman Sachs lowers base metals price forecasts; Citi forecasts a -20% fall in base metals prices in the next six months and
-Brokers see short-term pain, medium-term gain for commodities
-Goldman Sachs prefers bulks over base metals on a three-to-six-month view
-Citi forecasts a -20% fall in base metals prices in the next six months
-Two brokers raise ratings for
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Goldman Sachs on the outlook for the Australian mining sector
Despite near-term demand headwinds, Goldman Sachs lists several key reasons to remain positive on the broader commodities complex and the Australian mining sector over the medium term.
The broker cites ongoing supply-side disruption and under-investment as key positives, along with an anticipated recovery in Chinese infrastructure and property construction in 2023. Deficits in base metal markets are also expected to result from the decarbonisation push.
Goldman Sachs considers the Mining sector is undervalued. Despite rising costs and increasing sustaining capital expenditure, free cash flow remains strong. There is also thought to be incentives for big miners to grow, given there are fewer M&A targets on offer.
Over the shorter term, encompassing the next two to three quarters, the broker anticipates a tough period for base metals and steel, as European and global demand continues to weaken, and the US dollar continues to strengthen.
However, the broker notes exceptions for some commodities, either due to tight supply and resilient demand and/or favourable substitution dynamics. These commodities include high energy thermal coal, met coal (being diverted into the thermal market), rare earths (NdPr), zircon and high-grade titanium dioxide (TiO2) feedstock.
Ongoing Chilean mine production issues may also provide a fillip for copper prices, note the analysts.
Overall, Goldman prefers bulks over base metals on a three-to-six-month view, based on recent conversations with Chinese steel mills, which pointed to an uptick in demand.
The broker raises its rating for
Regarding base metals, Goldman lowers aluminium and nickel price forecasts after reducing European demand forecasts. It's noted the industrial supply chain is currently undergoing an aggressive de-stocking cycle, given extreme uncertainties over demand conditions into winter.
Despite the lower aluminium price forecasts, the broker increases its rating for
Partly due to a forecast drop in copper and zinc prices, Goldman lowers its rating for Sandfire Resources ((SFR)) to Sell from Neutral. Other reasons include the growth capex required for the Motheo copper mine in
While South32 ((S32)) has a supportive dividend yield, a current share buyback program and compelling long-term base metals growth, the broker lowers its rating to Neutral from Buy on lower base metal price forecasts.
This special edition of the Broker Call *Extra* Report will be published shortly after the publication of this story.
Citi generally agrees with Goldman Sachs on the outlook for metals
Just like Goldman Sachs, Citi is bearish on metals over the next six months on a weakening demand trajectory, and is bullish thereafter.
The broker sees short-term headwinds for metals demand as
The broker expects the European power crisis will weigh on regional growth in early 2023 and impact metal consumption in
Macroeconomic data show the analysts manufacturing activity growth weakened further in September across
While there has been recent government support for property prices in
All up, Citi estimates base metals prices will fall by around -20% from current levels over the next six months. It's recommended investors sell into the transitory late September relief rally.
In short, the broker remains cautious on commodities linked to global manufacturing and more positive on
Apart from an increased coal price forecast, the broker expects lithium prices to remain resilient.
Citi analysts expect a rebound for metal prices during the second half of 2023 from an easing in
In common with Goldman Sachs, Citi upgrades its rating for both
In the case of South32 ((S32)), Citi upgrades its rating to Buy from Neutral after a -23% share price fall over the same period, whereas Goldman Sachs lowered its rating on its reduced base metal price forecasts.
For
The remaining rating change by Citi is a downgrade to Neutral from Buy for copper-focused 29Metals ((29M)).
In an update last week,
Moreover, the broker noted prices for most commodities are still above cost support levels and do not yet fully 'price in' a recession. Thermal coal and gas are considered exceptions, with supply disruption to support very high prices for up to three years.
On the supply side, the analysts felt the outlook is mixed over the next 12 months. On one hand, markets for aluminium, zinc and gas/coal are set to remain disrupted. On the other hand, supply of copper, iron ore and platinum group metals are expected to increase as projects ramp-up and disruption moderates.
This broker lowered its short-term price forecasts for iron ore and copper in the belief near-term earnings risk is skewed to the downside. It's noted copper remains stuck between the worsening economic backdrop and potential supply growth, as evidenced by BHP Group's bid for
Alternatively, changing supply and demand dynamics result in higher forecasts for lithium prices and higher longer-term price estimates for coal, aluminium, zinc and lead.
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For the latest Mining sector ratings and target prices set by
As suggested earlier, today's Broker Call *Extra* Report functions as a supplement to this story, offering more colour and details to Goldman Sachs' sector update.
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