20150408-BMO-Q2_15__Seasonal_Weakness_but_Dollar-Driven_Rout_Done_62页_1mb

Commodity Canvas Q2/15 Summary

Core Content Overview

This document is a Q2/15 commodity outlook report by BMO Capital Markets, analyzing the performance and forecast of various commodities and mining equities. The report outlines the expected price movements, highlights key changes in forecasts, and discusses the impact of macroeconomic factors such as the U.S. dollar and geopolitical tensions on the market.

Main Views and Key Information

1. Commodity Price Outlook for H2/15E

• Positive Outlook (>5%): Nickel, Uranium, Platinum, Zinc, Palladium are expected to outperform due to better supply-demand fundamentals.
• Neutral Outlook (+/- 5%): Gold, Silver, Diamonds, Aluminum, Copper, Met Coal, Iron Ore are expected to remain relatively stable.
• Negative Outlook: Thermal Coal is projected to decline.

2. Price Forecast Revisions

• Gold: Revised up to US$1,207/oz from US$1,177/oz in 2015E, driven by safe haven trade in Q1/15. However, downside risk remains if Fed rate hikes occur earlier than expected.
• Silver: Revised up to US$16.43/oz from US$15.30/oz in 2015E, also benefiting from the safe haven trade. The gold:silver ratio is expected to remain elevated at 73-74x through 2016E.
• Platinum: Revised up to US$1,299/oz in 2015E, with further increases expected in the following years.
• Palladium: Revised up to US$830/oz in 2015E, with continued growth forecast.
• Diamonds: Revised down to 216 in 2015E, with further downward revisions for 2016E-2018E due to a weaker base.
• Copper: Revised down for 2015E-2017E due to a surplus market and weak demand.
• Aluminum: Revised down for 2015E-2017E due to China's surplus and rising semis exports.
• Nickel: Revised down in 2015E due to Q1/15 price performance and rising LME inventory.
• Steel (HRC): Revised down for 2015E-2017E due to a stronger USD, weaker U.S. demand, and global excess supply.
• Iron Ore: Revised down due to weaker demand from the steel sector.
• Met Coal: Revised down for 2015E-2016E due to weak demand and a weaker AUD.
• Thermal Coal: Revised down for 2015E-2017E due to weak demand and a weaker USD.

3. Key Changes in Mining Equities

• Precious Metals: Several companies have seen changes in ratings and targets, with notable increases in NPV and EPS for Lake Shore Gold, Harmony, and AngloGold Ashanti, and decreases for OceanaGold and others.
• Base and Bulks: Changes in NPV and CFPS for companies such as Nyrstar, Vale, and Cliffs reflect revised price forecasts and market conditions.

4. Macroeconomic Influences

• U.S. Dollar Strength: The stronger-than-expected U.S. dollar has removed downward pressure on commodity prices but has not driven significant upward movement.
• Fed Rate Hike Expectations: The market is pricing in a rate hike in September 2015, which could negatively impact gold prices. However, if the rate hike is delayed, there may be a positive effect on gold.
• Inflation Expectations: BMO Research does not expect higher-than-expected inflation to support commodity prices, as the Fed has more room to tighten monetary policy.
• Geopolitical and Economic Factors: Geopolitical tensions and economic weakness in the Eurozone have contributed to the safe haven trade, supporting precious metals like gold and silver.

5. Supply and Demand Dynamics

• Gold: Mine supply is expected to grow through 2017E, with demand outpacing supply in 2019E assuming 400tpa of net central bank purchases.
• Silver: Mine supply is forecast to grow through 2019E, with a potential deficit market by 2018E. Demand is expected to increase from both industrial and jewellery sectors.

Summary Table

Commodity	Outlook	2015E Forecast	2016E Forecast	2017E Forecast	2018E Forecast	2019E Forecast	LT (2015$)
Gold	Neutral	1,207	1,180	1,200	1,225	1,250	1,205
Silver	Neutral	16.43	16.00	18.00	20.00	21.00	20.24
Platinum	Positive	1,299	1,350	1,350	1,450	1,600	1,494
Palladium	Positive	830	880	925	975	1,000	964
Diamonds	Neutral	216	223	237	252	267	258
Copper	Negative	2.74	2.70	3.20	3.20	3.20	3.08
Aluminum	Neutral	0.83	0.90	1.05	1.10	1.08	1.04
Nickel	Positive	7.01	10.50	11.00	11.00	9.00	8.68
Zinc	Positive	1.02	1.15	1.25	1.25	1.10	1.06
Iron Ore	Negative	59	60	70	70	80	77
Met Coal	Neutral	112	114	135	150	165	159
Thermal Coal	Negative	69	69	78	88	94	90
Steel HRC	Negative	507	525	535	535	535	535
Uranium	Positive	44	58	70	70	70	67

Key Takeaways

• Gold and Silver: Both have benefited from the safe haven trade, but gold is more sensitive to Fed rate hike expectations.
• Commodity Performance: Nickel, Uranium, Platinum, Zinc, and Palladium are expected to outperform due to improved fundamentals.
• Market Dynamics: The U.S. dollar's strength has dampened commodity prices, but seasonal demand in July-August may provide a rebound.
• Supply-Demand Balance: The report highlights the importance of supply and demand dynamics, particularly for gold and silver, with potential shifts in the future.
• FX Impact: Changes in foreign exchange rates, particularly the RUB and ZAR, have influenced the price forecasts of several commodities and mining equities.