Commodities | Nov 09 2022
This story features PILBARA MINERALS LIMITED, and other companies. For more info SHARE ANALYSIS: PLS
A glance through the latest expert views and predictions about commodities: lithium outlook remains positive, copper set to decline amid surplus, US steel spreads drop.
-Undersupply underpins strong lithium pricing outlook
-Copper prices could plunge in 2023 but green metal demand on the horizon
-Investors look to US steel spread performance for local readthroughs
By Danielle Austin
While the lithium industry reported production misses and delays in commissioning fresh projects in the September quarter, both Macquarie and JP Morgan have lifted their price outlook as demand continues to drive up spot pricing.
Amid a persisting undersupply of lithium, auction prices continue to rise. Both brokers don't see the price easing in the near term as output remains constrained.
In an indication of how tight the market is, producers have been able to sell low grade spodumene at minimal discounts to converters, while projects continue to face delays.
Macquarie recommends Pilbara Minerals ((PLS)) and IGO ((IGO)) as its key picks in the sector, noting both offer strong production upside. Forecasts have been lifted for each by 24-152% and 6-103% respectively through FY27.
In addition, forecasts lifted by 6-110% for Allkem ((AKE)) and 14-93% for Mineral Resources ((MIN)).
Marking to market, JP Morgan's pricing forecasts increased by 44% and 66% in 2023 and 2024 to US$6,500 and US$5,700 per tonne respectively. This broker remains Overweight rated on both IGO and Allkem.
Anticipating a 170,000 tonne refined market surplus to emerge in 2023, the Goldman Sachs commodity team lowered its copper price forecasts for the coming year.
The broker is now assuming average copper prices of US$3.78 per pound in 2023, compared to a previous assumption of US$4.00 per pound. The analysts also downgraded expectations for global demand growth to 3.1% from 4.1%.
Goldman Sachs expects the surplus to be driven by weak Chinese property and European industry demand, following on from an expected deficit of -155,000 tonnes in 2022. According to the broker, visible stocks will be at their lowest level in eighteen years, with deficits reported in five of the last six years.
The team at Goldman Sachs does highlight the world is witnessing the beginning of the global demand surge for green metals, which could go some way in offsetting other headwinds.
BHP Group ((BHP)) and Rio Tinto ((RIO)) remain the broker’s pick for domestic copper exposure, with both trading below net asset value.
A decline in US steel company share prices appears to have spooked domestic investors, observes Jarden, with concern around a potential decline of Bluescope Steel’s ((BSL)) spreads driving a share price decline.
The broker highlights there is concern that Bluescope Steel’s spreads could decrease to US$300 per tonne, reflecting a -US$30-40 per tonne decline. This comes after the US Midwest CRU Index Futures price dropped -US$33 per tonne, following the latest interest rate hike from the US Federal Reserve.
Jarden anticipates a US steel spread of US$341 for Bluescope Steel at the end of November. The broker remains Overweight rated on the company, while also retaining a Neutral rating on Sims ((SGM)).
The latter effectively issued a profit warning at the AGM yesterday.
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For more info SHARE ANALYSIS: AKE - ALLKEM LIMITED
For more info SHARE ANALYSIS: BHP - BHP GROUP LIMITED
For more info SHARE ANALYSIS: BSL - BLUESCOPE STEEL LIMITED
For more info SHARE ANALYSIS: IGO - IGO LIMITED
For more info SHARE ANALYSIS: MIN - MINERAL RESOURCES LIMITED
For more info SHARE ANALYSIS: PLS - PILBARA MINERALS LIMITED
For more info SHARE ANALYSIS: RIO - RIO TINTO LIMITED
For more info SHARE ANALYSIS: SGM - SIMS LIMITED