Hilarious consensus commodity forecasts

From UBS:


UBS iron ore prices below consensus

For 2015 and 2016, UBS’s iron ore price forecasts are below consensus. Consensus forecasts are US$76/dmt cfr for both 2015 and 2016, against our estimates of US$66/dmt cfr and US$65/t cfr for 2015/16, respectively. Our more bearish outlook stems from low demand growth (China property slowdown) and a further expansion of low cost supply from the 3 majors, Minas-Rio & Roy Hill. Although we estimate >25% of current production is loss making at current prices; not all of these players will exit (choosing to fight and cut costs instead), prolonging the supply glut. A lower oil price is also expected to flatten and lower the cost curve, adding further downside risk to our price forecasts.

UBS coal prices below consensus too

For met coal, consensus forecasts of US$125/t for 2015 & US$136/t in 2016, are both above UBS of US$119/t & US$128/t, respectively. Spot prices have been drifting lower recently, now US$104/t, outside the 2014H2 trading range of US$110-115/t. Our outlook is more negative than consensus because of ongoing withdrawal of demand from China (50Mt in 2015 vs 75Mt in 2013), supply growth from Australia, a lower A$ which enables Aussies to lower prices, & a lack of US cuts. For thermal coal, consensus forecasts Newcastle spot of US$69/t in 2015 & US$72/t in 2016, above UBS of US$64/t in & US$66/t in 2015/16. Spot has been volatile recently, some benchmarks lifting back towards US$70/t fob. We see this as due to small trades related to the upcoming JFY contract negotiation & bidding by producers for quality coals for blending (China quality compliance). The fundamentals remain weak for thermal prices in our view (China’s various policy moves, a strong USD, low oil price & a lack of supply cuts).

How to play the bulk commodities sector?

The outlook for 2015H1 is a difficult one for bulk equities to perform in the face of ongoing consensus downgrades. In a relative sense, we believe the best placed will be those with low costs and high quality product. In iron ore we prefer BHP Billiton and Rio Tinto, with valuation support and progressive dividend yields of >5%. In the coal space, Whitehaven has high-quality coal products that may attract favourable prices for blending, while the lower A$ contributes to an almost doubling margins and supporting a debt refi.

Even though the analysis is right, the price forecasts are far too bullish (despite being better than the hilarious consensus numbers). The way to play the sector is to short it, or sell and wait for the blood to flow.


  1. Any IO price forecast above $20 in 2015 is already horrifically generous. China will experience the burst of the most gigantic housing bubble in the history of the mankind and go with it the entire IO industry.

      • IO miners pumped additional 140mt in 2014 and the IO price halved. There will be 150mt more coming in 2015 and China’s real estate market is in much worse shape now than at the beginning of 2014. Half of China’s steel is used for construction and 15% for machinery which is derived demand from construction. These numbers are from the China Metallurgical Industry Planning and Research institute. You think China’s steel demand will keep growing for ever even when the housing market collapses?

  2. ErmingtonPlumbing

    I’m thinking a satisfactory shake out will occur in the low 40s per ton, creating a price floor then.

    But I’m just a plumber, so what the fuck do I know!


    • The Traveling Wilbur

      Hi Mr P. Serious question, what would you do if you hired a plumber and they refused to give you the warranty documentation for a tap you’ld purchased through them that they’d installed. Sorry to go off topic. And if you’ld rather not, I’d understand. Cheers. And yes. Bill has been paid in full.

      • 1. Try to resolve it with the plumber. Document this, even if it is your own diary note.
        2. Call Fair Trading and ask them for advice. They would normally make calls on your behalf in an effort to resolve things. Having a third party involved might prompt the plumber to pull his finger out.
        3. Try contacting the manufacturer directly. Not all will insist on proof of purchase (although photos and other supporting material might help). This will only work if the fault is with the product and not the way the plumber installed it.
        4. In some states, you can make a complaint to the body which licenses plumbers. Use Google to find whether this is possible.
        5. If it is something super valuable, consult a lawyer. It’ll cost you, but you could always chase the plumber for legal costs and perhaps be so vindictive as to bankrupt him.
        6. If you live in a small enough town, consider spreading the word about how shit the plumber is. Only do this if the plumber is smaller than you.
        7. Don’t treat this as advice. It’s a comment on a blog. Seek your own advice from a professional.

      • ErmingtonPlumbing

        I suspect he chucked out your taps warranty with the box it came in.

        In 25 years of plumbing I’ve never heard of a claim on a manufacturer warranty for domestic tap ware.

        If I supply a customer with faulty item, then I expect my supplier Reece, Plumbers co-op or Bunnings to replace it.

      • The Traveling Wilbur

        Thank you for your thoughts Mr P. The box having been ‘recycled’ was my suspicion too. Much appreciated.

      • Even if he has thrown out the box, the product may still be covered by the warranty. Try talking to him and the manufacturer to find out.

  3. The Traveling Wilbur

    China FDI print 29.40%??!!! $@#$@!

    What with? Monopoly money? Oh, wait, no… QE from EU probably. Oh, wait…

  4. Isn’t it easier and far more accurate to just base your prices on the futures market? Does the market not know what it wants?