Material issues: positioning of commodities – FNArena
Merchandise | 12:41
A look at the latest opinions and forecasts from experts on commodities: positioning on commodities; gold stocks; the copper; and gas / oil.
– Strong recovery in commodity prices after recent drops unlikely, says UBS
– Gold under pressure; time to buy gold stocks?
-Constraints on metal consumption and falling demand make Citi more bearish on copper
-Gas pricing on Australia’s east coast remains disconnected from soaring international prices
By Eva Brocklehurst
Very recently, the outlook for commodity demand has deteriorated, UBS observes. Evergrande’s financial woes triggered a slowdown in real estate sales in China as Power shortages and rationing have had a strong impact on industrial activity since July.
The demand momentum in developed markets has peaked and demand is shifting into services from goods. Short-term supply constraints in smelting and refining in China offer some compensation as central banks move closer to rate hikes.
Therefore, UBS says this is not the backdrop for a strong rally in commodity prices, which are expected to decline further over the next 12 months. Therefore, it is too early to be long and the broker remains underweight the mining sector with mostly Sell or Neutral ratings across its entire coverage.
UBS prefers thermal coal, nickel, aluminum and lithium at this stage. Thermal coal appears resilient while demand for electric vehicles remains strong and should support nickel and lithium. The structural outlook for aluminum has also improved, although the broker does not believe spot prices are sustainable.
Meanwhile, the basics of iron-ore are considered difficult and UBS is considering a further fall in prices. Gold provides hedge against inflation risks, but the broker points to rising yields and standardizing policies that should put pressure on prices.
UBS maintains a sell rating on Rio Tinto ((RIO)) while on the other hand a buy rating is held for South32 ((S32)) because it has a more attractive range of commodity exposures.
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