Mixed outlook for bulk commodities and mined energy

Mixed outlook for bulk commodities and mined energy

•Steel-making raw materials: We remain bearish on the outlook for manganese because of excess supply concerns while rising production in China and signs of normalization in Australian exports of metallurgical coal have prompted us to lower our forecasts for 2012-14. However, weaker coking and direct injection coals appear more vulnerable in the current environment. Although we do not now expect iron ore prices to be as strong in 2012 as in 2011, a range of supportive supply issues and further growth in steel production in China should keep prices well above marginal cost. Iron ore remains our most favoured bulk commodity.
•Mined energy: Thermal coal prices are expected to be resilient in the face of Chinese domestic pricing pressures as strong volume growth in all major markets in the Asia Pacific region limits downside risks. Given the global uranium supply/demand balance looks to return back to deficit conditions from 2013, we expect the spot and term markets to become increasingly competitive as utilities jostle to secure their fuel requirements in the coming years.