Macquarie Slashes Commodity Forecasts

Macquarie slashes commodity forecasts

MACQUARIE Research has downgraded the outlook for commodities, slashing prices for base metals in 2009 by 30-40% from previous forecasts.

The issuing of new forecasts was delayed for a month while the company could better assess the changing dynamics of global growth and the prospects for recovery.

Macquarie has forecast copper to sit at $US1.70 per pound next year, down 43% from the previous 2009 forecast of $US3/lb.

Copper is expected to sit at $US2/lb in 2010, 27% below the previous forecast of $2.75/lb.

Macquarie said there should be some recovery in copper between 2010 and 2012, and prices will remain above the marginal cost of production.

Zinc is expected to be at US51.3c per pound next year, 40% lower the previously forecasted US85c/lb.

Macquarie estimates zinc prices will be at US70c/lb in 2010, $US1.10/lb in 2011, and $US1.20/lb in 2012, all slightly lower than previous forecasts.

'In terms of relative performance, zinc has the greatest appreciation in pricing from current depressed levels due to the lack of new mine supply relative to demand over the 2011 to 2012 period,' Macquarie said.

Nickel is expected to sit at $US5/lb next year, down 42% from Macquarie's previous forecast of $US8.62/lb.

The previous forecast for nickel in 2010 was $US8.50/lb, which has been cut to $US6.37/lb, while prices are expected to sit at $US7/lb for 2011 and 2012.

Aluminium and lead price forecasts for 2009 have both dropped 30% each on previous estimates, to US90c/lb and US60c/lb respectively.

Macquarie tipped iron ore fines contract prices to drop 20% and remain relatively stable.

'The drastic decline in ocean freight rates has already pushed delivered prices to well below Chinese domestic iron ore costs, causing 2008 Chinese (cnmining) production to fall 40 million tonnes year on year,' the report said.

'This, along with other big supply cuts, should help stabilise prices.'

The biggest change in the 2009 forecast is for hard coking coal, with prices for 2009 expected to be at $US140 per tonne free on board, down 60% from the previous estimate of $US350/t FOB.

Macquarie said the downgrade is due to a large surplus and expects thermal coal to also drop slightly due to a small surplus.

'We foresee still relatively tight markets and 2009 prices, while sharply lower, remaining above 2007 levels due to sharply higher marginal costs of production.'