Copper was hardest hit in the price revision, with Macquarie downgrading its 2013 forecast by 7% to $US7459 per tonne ($3.38 per pound) and its 2014 by around 15% to $6550/t ($2.97/lb).
Macquarie said the surplus that had been building over the past year was expected to continue to grow.
South-East Asia-focused producer PanAust is Macquarie’s preferred copper pick with an outperform rating, but its price target has been lowered by A20c to $3.20 per share.
Nickel forecasts have been cut by 3.2% to around $16,440/t ($7.46/lb) for 2013 and by 2.7% to $18,006/t ($8.17/lb) for next year, due to a looming oversupply.
Macquarie said demand wasn’t the problem, rather the ramp-up of large projects outside China next year was likely to coincide with a flood of nickel from Indonesia to China to make nickel pig iron.
“We think that rising costs of ore from Indonesia (in lieu of an outright export ban that could still take place in 2014, but at this stage looks increasingly unlikely) will push up breakeven costs for Chinese producers and eventually allow a strong recovery in nickel prices to take place from 2015 onwards,” Macquarie said.
Low-cost producer Western Areas remains the analysts’ top pick, though its price target has been reduced to $A4.80 from $5.15.
In the gold space, Macquarie made only small changes to forecasts and already had a bearish outlook even before this month’s correction.
Macquarie is expecting gold to be weak in the current quarter and has dropped its 2013 forecast by 4% to $US1467 per ounce and by 3% to $1385/oz for 2014.
“We believe that the weakening sentiment for gold is likely to continue with reduced tail risks, low inflation, and a reduced prospect of more QE,” Macquarie said.
“With this ongoing sentiment we believe that the risk is to the downside for consensus numbers which will continue to drive downward pressure on gold equities – making the gold sector an underperformer relative to the broader market over the short to medium term.”
Macquarie prefers producer Regis Resources, up-and-comer Beadell Resources and explorer Papillon Resources among the gold plays.
“While Newcrest has underperformed on both an operational and share price level, we believe that incremental production improvements will begin to become evident over the coming six months as
MOPU nears completion and Cadia East ramps up to full production,” analysts said.
“That said, we see investor confidence as taking several quarters of improving production to return.”
Iron ore lump was about the only thing revised up, albeit only slightly.
The price outlook for 2013 was lifted by 1% to $132/t, while 2015’s estimate was also lifted by 1% to $115/t.
BC Iron is the favoured producer with an outperform rating and a revised price target of $A3.72 (previously $3.90).
Hard coking coal price forecasts were dropped by 9% for this year, 13% next year and 7% for 2015, while thermal coal price outlooks were lifted by 4% this year and left unchanged for the following two years.
Zinc, aluminium and uranium short-term prices were also lowered.
Of the majors, Macquarie preferred BHP Billiton over Rio Tinto due to greater diversification and lower risk.
Due to the commodity price revisions, Macquarie cut medium-term profit forecasts for BHP and Rio by 3.6% and 1.6%, respectively.
Despite downgrades to metal price forecasts, Macquarie said there was still value in the Australian resources sector after the recent sell-off.
“Such significant underperformance over recent weeks has left the sector looking cheap both in absolute and relative terms,” analysts said.
“Here we note that on average the Australian resources sector is trading at an average 50% discount to NAV [net asset value] and a 17% discount to the market on FY14 earnings [with both metrics at multi-year lows].
“As a result, we continue to see significant investment opportunities despite freshening macro headwinds.”
