Commodity prices continue to rally, and analysts are scrambling to upgrade their forecasts.
Macquarie Bank did just that earlier this week, making significant upward revisions to its iron ore and coal forecasts for the years ahead.
And now HSBC has followed suit, noting that China’s demand for commodities continues to surprise to the upside.
Here’s its view:
China’s supply reform program and fiscal stimulus remain important drivers for commodity prices. While the market had been concerned about a property slowdown and tighter liquidity in 2Q17, the price correction was overdone. Markets have since recovered strongly and this renewed strength has been confirmed in recent ground trips and management discussions. With underlying demand expected to remain stable for 2H17, this, together with better supply discipline, should see prices being well supported. With increasing evidence that China will remain committed to its supply reform program over the next 1-2 years, those commodities that are largely produced in China such as steel, coal and aluminum should benefit. Hitherto, policy implementation has been very strict and the frequent environmental and safety inspections have kept shut capacity closed, despite the temptation to restart due to higher margins. In the near term, the winter shutdowns in Hebei and Shaodong provinces will likely cause further disruptions in steel and aluminum production.
And here are HSBC’s revised price forecasts.
The largest upgrades are for iron ore, steel and copper, with smaller tweaks coming for aluminium, nickel and coking and thermal coal.
Despite some significant near-term price upgrades, HSBC has left its long-term forecasts unchanged at this stage.
“We have sided with prudence and conservatism, opting to be cautious on near-term pricing despite the highly elevated spot prices,” it says.