BRIC has now become the standard vernacular with which to refer to the current and future economic emergence of Brazil, Russia, India and China. Likewise, PIGS has unfortunately become established in economic speak when referring to the collective strugglers of the Eurozone in Portugal, Ireland, Greece and Spain.
So this week, your scribe makes his own attempt at a pithy economic acronym – not for countries, but mineral commodities. That is, the acronym’s aim is to reflect the future emergence of selected commodity prices likely to move upwards in value rather than the fate of certain economies.
That commodity prices are set to go “UPTZ” by 2016 was the best I could do – meaning that uranium, palladium, tin and zinc stand out as the commodities where the industry fundamentals look strongest in that timeframe.
Scrabble players may be able to do better than Strictly Boardroom – especially perhaps if the additional information that alumina, nickel, aluminium, platinum, lead and vanadium will also see price rises that exceed 15% by 2016 from a Q3 2012 average benchmark price. Please send your commodity acronyms through to Strictly Boardroom.
The traditional commodity stalwarts of the resources boom sit further down the pack – with iron ore, for example, forecast to hold the line in price terms: That is, in 2016 iron ore prices will sit near current levels (not fall off a cliff as some commentators have suggested).
Those shareholders who have been pushing for their companies to switch into either gold or copper projects may wish to take heed of the rankings. Gold and copper – having had a strong run in recent years – will be out-performed by other metals in price terms by 2016 – which may not of itself diminish the universal popularity of gold and copper, but at the least suggest pause for thought.
For those unfamiliar with the multi-commodity price forecast rankings, the mechanics of compiling the 2016 commodity outlook are as follows. Firstly, the respective CRU Group analysts across the various markets compile their forecast average mineral market prices for calendar 2016. Secondly, a recent reference date is chosen, set at the average price for Q3 2012. Finally, a comparison of the 2016 to the 2012 Q3 benchmark gives the directional indicator – whether a particular market will go up or down.
The usual words of caution apply at this juncture to avoid misinterpretation. A higher forecast for 2016 above prevailing prices does not imply a steadily rising commodity price over the intervening period. Likewise, a lower price in 2016 than the 2012 benchmark does not imply a steady fall. Similarly, lower prices in 2016 do not automatically imply lower margins for all producers in that particular market, but do place greater focus on management – to manage margins carefully and ‘beat the squeeze’.
To the rankings, 14 commodities are forecast to rise in price by 2016 in nominal terms, with 10 falling in price.
Here is the table of mineral commodity price outcomes, ordered from highest to lowest in terms of movement in commodity price percentage. The 1-24 ranking combines the Q3 2012 average price as the baseline benchmark – then compares this with the latest available average 2016 price forecast. Conversely, the number in brackets next to each commodity refers to the previous ranking position (based on a Q2 2012 price benchmark and 2016 forecasts at that time).
1 Palladium (1)
2 Tin (2)
3 Zinc (3)
4 Uranium (4)
5 Alumina (5)
6 Nickel (9)
7 Aluminium (6)
8 Platinum (7)
9 Lead (8)
10 Vanadium (11)
11 Coking Coal (18)
12 Cobalt (13)
13 Phosphate (12)
14 Iron Ore (14)
15 Manganese (15)
16 Urea (21)
17 Sulphuric Acid (23)
18 Gold (16)
19 Met Coke (10)
20 Potash (19)
21 Copper (17)
22 Ammonia (20)
23 Silver (22)
24 Sulphur (24)
Allan Trench is a professor at Curtin Graduate School of Business and research professor (value & risk) at the Centre for Exploration Targeting, University of Western Australia. He is a non-executive director of several resource sector companies - and the Perth representative for CRU Strategies, a division of independent metals and mining advisory CRU group (firstname.lastname@example.org).
*With thanks to Peter Ghilchik, CRU Group email@example.com