Commodities | Mar 20 2007
By Chris Shaw
Yesterday FNArena reported brokers such as GSJB Were and Morgan Stanley were somewhat optimistic on copper prices in the short-term thanks to a tightening in the copper market as genuine buying is emerging at the same time as expected supply increases have failed to materialise.
ABN Amro notes industry heavyweight BHP Billiton (BHP) has much the same view, management suggesting while it agrees with the consensus view supply increases will push the market into surplus this year there is a growing risk this outcome takes longer than expected.
Delays to increased production remains the unknown factor in the company’s view, as it points out much of the expected expansion of production is coming from smaller companies, meaning there is increased risk of problems delaying the emergence of the additional output.
The broker also sees similar signs of Chinese buying re-emerging, at the same time as there is no evidence of any substantial off-warrant stockpiles of the metal, which suggests the view of a tightening physical market is the correct one at this point in time.
It also notes a similar trend is evident in the concentrate market, as again while both China and India have lifted their smelting capacity there is insufficient concentrate available, the resultant increase in tolling rates potentially providing a boost to BHP’s earnings in the broker’s view.
Credit Suisse points out the company expects the concentrate market to remain in deficit until at least 2009, which again is a positive for the company in that it is long concentrates, though it notes management sees limited upside from changes in tolling rates.
Both brokers are positive on BHP Billiton, the FNArena database showing the stock is rated as Buy eight times, Accumulate once and Hold once, with an average price target of $34.46. Shares in BHP are stronger this morning, as at 10.30am the stock was trading 41c higher at $28.76.