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Nonferrous Metals &
Mining
Higher Price Forecasts Lift
EPS Estimates for Most,
Except Aluminum and Zinc
Commodity price revisions: Our global team today
published its quarterly playbook, in which we make
changes to the nonferrous metals pricing forecast.
Please see the “Morgan Stanley Global Metals Playbook
– 3Q09: Short-term Caution, Medium-term Optimism,”
dated July 2, 2009, for greater detail on these revisions.
Although short-term risks to the recent commodities rally
have increased, we have become more constructive on
the outlook for pricing, especially in our preferred
commodities of copper, met coal, and thermal coal. For
example, we have increased our 2009-10e pricing
forecast for copper by ~50% to $2.14/lb and $2.50/lb.
We remain more cautious on aluminum and zinc,
however, and have cut our pricing forecast for aluminum
by 6% to $0.80/lb in 2010e.
On our new commodity price forecast, we have raised
our 2009-10e EPS forecasts and PTs for most of our
stock coverage, with the biggest increase for JXC. On
lower aluminum prices, we cut our 2009-10e EPS
forecasts for Chalco and JZWF. For Chalco, our higher
PT is driven by the long-term aluminum price, which is
6% higher than our previous forecast, while that for JXC
is supported by our higher copper price forecast (+50%).
We have upgraded JXC to EW on our new PT. Please
see our separate JXC report of July 2, 2009, for further
details. Our preferred stock in the sector is Korea Zinc,
which has 24% potential upside. Our least favored
stocks are Chalco, on our downward revision to
aluminum prices, and Hunan Nonferrous, with the
biggest downside to our PT. We have upgraded our
industry view on China Nonferrous Metal & Mining and
Indonesia Nickel to In-Line, the worst seems to be over
for these sectors. We believe that industry profits have
troughed in 1H09 and will improve sequentially.
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