Goldman sees upside in nickel, zinc and palladium in 2014

Heavyweight broker Goldman has nickel, zinc and palladium as its top mining commodity picks in 2014. On the other hand, it is bearish on iron ore and copper forecasts for the next 12 months as it is issued a comprehensive update on prices Tuesday.


Heavyweight broker Goldman has nickel, zinc and palladium as its top mining commodity picks in 2014.

On the other hand, it is bearish on iron ore and copper forecasts for the next 12 months as it issued a comprehensive update on prices Tuesday.

For nickel, analyst Christian Lelong expects the cost of supply will rise as a result of the ban on unprocessed ore exports from Indonesia with potential for a shortage of nickel ore late this year or 2015.

In palladium, the broker reckons the market is in deficit even before investment demand and that surface stocks will begin to dry up through 2014.

Lelong says Goldman continues to be bullish on zinc as it has been for some time.

"We now see the zinc balance tightening more significantly in 2015 and 2016 owing to a lack of supply growth, and as a result, we have raised 2016 and 2017 LME zinc price forecasts to US$2,300/t (from US$2,200/t)," he says.

Further supporting zinc prices over the next couple of years, is the forecast reductions in gold, silver and copper prices, which make up 60% of zinc miners' revenues, which means a constraining of zinc supply growth.

Interestingly, Goldman sees a sharp drop in iron ore prices.

"After years of tightness, we believe iron ore supply growth will exceed demand growth in 2014. We estimate that up to 80Mt of seaborne production capacity may be redundant this year, leading to the closure of marginal mines in China and other regions.

"We estimate that approximately 20% of Chinese iron ore production may close over the period 2014-15."

Meanwhile, in copper, the “bottom up” supply and demand balance continues to point to a surplus market in 2014 and 2015, on the back of strong supply growth following a decade of strong copper mining capital investment, says Lelong.

For metallurgical coal this year, the broker expects further cuts from marginal producers to offset supply growth from Australia. It has downgraded its 2014 price forecast to US$145 per tonne, down 3%, and it also downgraded its long term forecast to US$185 per tonne, down 7%.

Finally, in potash, Goldman had anticipated a fall in prices after Uralkali’s decision to abandon its marketing joint venture with Belaruskali but supply dynamics have recently changed in favour of better producer discipline.

It has upgraded its price forecasts for 2014 and 2015 to US$318/t (up 13%) and US$310/t (up 3%) respectively.

Last year was a challenging one for mining stocks but commentators have noted commodity prices may strengthen due to demand from emerging markets and increasing discipline from producing miners.

Last year, however, broker Ambrian said that from an investment point of view the focus would be on projects with robust returns and low capital expenditure (capex).

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