Metals commentary: UBS slashes near-term commodity price forecasts

Accelerated capital outflow from emerging markets and tighter liquidity as stimulus ends from the U.S. Federal Reserve and the European Central Bank, a “rebalancing” in China where policy-makers are not actively stimulating private construction and infrastructure and the risk of a cyclical slowdown in the U.S. that may bring on renewed credit stress will combine to put pressure on near-term commodity prices, UBS Investment Research concludes in a new report.

Analysts Brian MacArthur, Chris Lichtenheldt and Matt Murphy have slashed their gold price forecast for 2012 to US$1,679 per oz., down 18% from their earlier estimate of US$2,050 per oz. Forecasts for 2013, 2014, 2015 and 2016 all remain unchanged from earlier estimates but are mostly below consensus at US$1,725 per oz. (-5%), US$1,400 per oz. (-10%), US$1,300 per oz. (-6%) and US$1,250 per oz. (+1%) , respectively.

For silver, the UBS analysts are calling for US$33.40 per oz. in 2012 — a decrease of 4% from their earlier estimate of US$35 per oz. In 2013 they forecast silver remains the same as earlier estimates at US$27.50 per oz., and in 2014 the silver price will average US$25 per oz., up 25% from their earlier estimate of US$20 per oz. In 2015 the silver price will rise 16% from their earlier forecast to US$20 per oz. from US$17.30 per oz., and in 2016 it remains unchanged at US$15.50 per oz.

The lower price forecasts for precious metals — except silver, in 2014 and 2015 — have led the UBS analysts to revise near-term earnings per share (EPS) estimates for a number of companies and therein target prices for their stock.

The report offers 12-month target prices on the shares of 16 precious metal companies and their variance from the analysts’ previous estimates. Their 12-month target price for Agnico-Eagle Mines is US$43 per share (-10%); Barrick Gold, US$59 per share (-8%); Centerra Gold, $20 (-13%); Goldcorp, US$60 (16%); Kinross Gold, US$13 (-13%); Newmont Mining, US$77 (-9%); Coeur d’Alene Mines, US$28.25 (-17%); First Majestic Silver, $18.75 (-6%); Fresnillo, £16.50 (-3%); Hecla Mining, US$6.85 (-9%); Pan American Silver, US$25.50 (-15%); Silvercorp Metals, US$8.50 (0%); Silver Standard Resources, US$20.50 (-6%); Silver Wheaton, US$42 (-5%); Franco-Nevada, $46.50 (-2%); and Royal Gold, US$77 (-3%).

In terms of base metals, UBS forecasts lower prices for nickel and uranium. Nickel prices in 2012 could fall 7% from their earlier estimate to US$8.37 per lb. and drop 9% to US$8.55 per lb. in 2013. Uranium oxide prices could slide 5% from earlier estimates to US$52 per lb. in 2012, fall 13% to US$52 per lb. in 2013 and drop 15% to US$55 per lb.

The analysts’ 12-month price targets on the stock of base-metal companies remained largely unchanged, with First Quantum Minerals at $23 (0%); Freeport-McMoRan Copper & Gold, US$50 (-3.8%); Hudbay Minerals, $14.50 (0%); Inmet Mining, $68 (0%); Katanga Mining, $1.10 (0%); Lundin Mining, $5 (0%); Thompson Creek Metals, $8.50 (0%); Royal Nickel, $1.50 (0%); Mirabela Nickel, $2 (0%); Sherritt International, $6.50 (0%); Alcoa, US$11.25 (0%); Eastern Platinum, $1.20 (0%); Noranda Aluminum, $13.50 (0%); Teck Resources, $50 (0%); Uranium One, $4 (-5.9%); and Cameco, $27.50 (-1.8%).