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1、15 October 2012Asia Pacific/AustraliaEquity ResearchDiversified Metals&Mining/Integrated Oil&Gas(Metals&Mining)/OVERWEIGHTLarge Cap Resources,Research AnalystsPaul McTaggart61 2 8205 4698paul.mctaggartcredit-James Redfern612 8205 4779james.redferncredit-Ben Combes,CFA61 3 9280 bescredit-Martin Kronb
2、org61 2 8205 4369martin.kronborgcredit-,COMMENTCommodity revisions favour oil stocks butalready priced in;we prefer large-cap minersWe upgrade STO to OUTPERFORM,downgrade OSH to NEUTRAL,andretain OUTPERFORM on RIO Downgrading iron ore and met coal price forecasts,upgrading near-term oil:Last Friday
3、our Global Commodities Research team published itslatest commodity quarterly research product(Commodities Forecasts:TheBest of Times;The Worst of Times,12 October 2012)in which we madelarge downward revisions to our iron ore,metallurgical coal and mineralsands price forecasts.Figure 3(page 3)contain
4、s our new versus oldcommodity prices.Oils are the clear winner versus iron ore/coal exposed miners:Assumed lower China steel growth rates see us reduce iron ore forecastsmaterially.Rio is now trading on a mid-cycle P/E of 14x(FY13E cash P/E of7x)and looks to be only moderately cheap against our valu
5、ations(DCF ofA$61/sh).The oils have strongly outperformed the miners and valuations forthe latter are looking reasonably fully priced with WPL trading on FY13 P/Eand cash P/E of 14x and 9x,respectively.Oils have outperformed the Diversified Miners and appear fairly valued:OSH has been a favoured exp
6、osure but with the shares up 23%in the pastthree months,the shares are now,in our opinion,fairly priced and we moveto a NEUTRAL rating.We upgrade STO to OUTPERFORM,$13.15 TP(from Neutral,$12.65 TP)on valuation and reflecting a 17%share priceretracement in the past six months.Figure 1:Rating and Targ
7、et Price Changes,New,Previous,New Target Price,Old Target Price,Rating,Rating,BHP.AXRIO.AXWPL.AXSTO.AXOSH.AX,35.0065.0037.5013.158.40,35.0070.0036.7012.658.30,NEUTRALOUTPERFORMNEUTRALOUTPERFORMNEUTRAL,NEUTRALOUTPERFORMNEUTRALNEUTRALOUTPERFORM,Source:Credit Suisse estimatesDISCLOSURE APPENDIX CONTAIN
8、S ANALYST CERTIFICATIONS AND THE STATUS OF NON-US ANALYSTS.U.S.Disclosure:Credit Suisse does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report.In
9、vestorsshould consider this report as only a single factor in making their investment decision.,CREDIT SUISSE SECURITIES RESEARCH&ANALYTICS,BEYOND INFORMATIONTMClient-Driven Solutions,Insights,and Access,2,15 October 2012The diversifieds have plenty of bad news priced inviz a viz the oilsUpgrading S
10、TO to OUTPERFORM,downgrading OSH to NEUTRAL,and stayOUTPERFORM on RioWe have recast our commodity forecasts and the clear winner is oil against iron ore/coal.Assumed lower China steel growth rates see us reduce iron ore forecasts materially.Rio isnow trading on a mid-cycle P/E of 14x(FY13 cash P/E o
11、f 7x)and looks to be onlymoderately cheap against our valuations(DCF of A$61/sh).The oils have stronglyoutperformed the miners and valuations for the latter are looking reasonably fully pricedwith WPL trading on FY13E P/E and cash P/E of 14x and 9x,respectively.OSH has been a favoured exposure but w
12、ith the shares up 17%in the past three months,it now,in our opinion,is fairly priced and we move to a NEUTRAL rating.We upgrade STO to OUTPERFORM,$13.15 TP(from Neutral,$12.65 TP)on valuationand reflecting a 16%share price retracement in the past six months.Figure 2:New target prices and stock ratin
13、gs,Share,TP,Potential,New,Previous,Price New Target Price,Old Target Price Change Upside,Rating,Rating,BHP.AX 33.35,35.00,35.00,0%,5%,NEUTRAL,NEUTRAL,RIO.AX,55.82,65.00,70.00,-7%,16%,OUTPERFORM,OUTPERFORM,WPL.AX 34.30STO.AX 11.59OSH.AX 7.70,37.5013.158.40,36.7012.658.30,2%4%1%,9%13%9%,NEUTRALOUTPERF
14、ORMNEUTRAL,NEUTRALNEUTRALOUTPERFORM,Source:Credit Suisse estimatesWith WPL an exception,balance sheets are reasonably fully geared with debt levelsrising limited scope for upside surprise on capital managementIf there is a general cross-sectoral theme to be drawn from our revised earnings and cashfl
15、ow projections for the major Australian resource exposures,it is that gearing will remainelevated suggesting in the case of the diversified miners,further asset sales or capexreductions,and more generally limiting the scope for upside surprise on capitalmanagement initiatives.WPLs balance sheet is t
16、he strongest in this group with gearing(ND:ND+E)forecast to be4%in FY13 and then moving to net cash in FY14 before capex ramps up for Pluto 2 LNGand then Sunrise and Browse gas.Low debt levels also reflect lower revenue growth andwe have broadly flat revenue over the period to FY18.With lower foreca
17、st commodity prices,we have BHP,RIO,STO and OSH all increasingdebt levels over the next 2-3 years as capex programmes proceed.Gearing levelstypically peak in FY13-14 with a range of 25%(Rio)to 48%(OSH).Downgrading iron ore and met coal price forecasts,upgrading near-term oilOn Friday our Global Comm
18、odities Research team published its latest commodityquarterly research product(Commodities Forecasts:The Best of Times;The Worst ofTimes,12 October 2012)in which we made large downward revisions to our iron ore,metallurgical coal and mineral sands price forecasts.Figure 3 below contains our newversu
19、s old commodity prices.Large Cap Resources,3,15 October 2012Figure 3:Credit Suisse commodity price forecasts,2012F,2013F,2014F,2015F,LT(real 2012),New,Old,Chg,New,Old,Chg,New,Old,Chg,New,Old,Chg,New,Old,Chg,Iron ore-fines,qtrly,FOB(Pilbara)Iron ore-fines(62%),FOBIron ore-lump,qtrly,FOB(Pilbara)Iron
20、ore-lump(64%),FOBIron ore-pellets(66%)FOB(Tubarao)Iron ore-fines,qtrly,China CFRIron ore-fines(62%),China CFRHard coking coalSemi hard coalSemi soft coalPCI coalThermal coal-JFY contractThermal coalAluminiumCopperLeadZincNickelAlumina(spot)Alumina contract linkageUranium(spot)Zircon bulkRutile bulkI
21、lmenite(sulphate 54%)GoldSilverPlatinumPalladiumBrent crude oilGas-Henry HubAUD/USD,US/dmtuUS$/t,dryUS/dmtuUS$/t,dryUS$/tUS/dmtuUS$/t,dryUS$/tUS$/tUS$/tUS$/tUS$/tUS$/tUS$/lbUS$/lbUS$/lbUS$/lbUS$/lbUS$/tUS$/tUS$/lbUS$/tUS$/tUS$/tUS$/ozUS$/ozUS$/ozUS$/ozUS$/bblUS$/MMBtu,1891171981271692031262101791421
22、53115960.923.600.930.898.07320318502,4752,4003131,679311,560641110.62.741.03,210131223143183225139221194146161115980.923.510.890.868.14315317532,5002,4003381,684311,538643104.42.661.03,-10%-10%-11%-11%-8%-10%-10%-5%-8%-2%-5%0%-2%0%2%5%3%-1%2%0%-5%-1%0%-7%0%2%1%0%6%3%0%,163101171109153179111173143121
23、126100980.993.631.050.998.56363318562,2002,0003001,840331,708698115.03.700.98,2181352331491892341452101791411511041000.983.610.960.918.62330315592,5002,4003501,715291,680728102.53.700.97,-25%-25%-27%-27%-19%-23%-23%-18%-20%-14%-16%-4%-3%1%1%9%9%-1%10%1%-4%-12%-17%-14%7%13%2%-4%12%0%1%,13785145931361
24、53951831551281331031081.073.401.191.149.07400347651,9001,5752501,748311,803798110.03.900.93,1901182101351712061282051741371481081101.073.401.131.099.07400347652,5002,4003001,500251,800800115.04.300.94,-28%-28%-31%-31%-20%-25%-25%-11%-11%-7%-10%-5%-2%0%0%5%5%0%0%0%0%-24%-34%-17%17%24%0%0%-4%-9%-2%,12
25、98013788131145901901621331391131181.093.181.361.279.53415360701,7001,1252251,500261,850850100.04.500.90,1691051891211571851152001701341441181201.093.181.361.279.53415360701,8751,6502501,400231,850850100.04.500.92,-24%-24%-27%-27%-17%-22%-22%-5%-5%-1%-4%-4%-2%0%0%0%0%0%0%0%0%-9%-32%-10%7%13%0%0%0%0%-
26、2%,1298014492131145901701451251301101101.002.500.900.859.00400320651,5001,0002001,300221,90090090.04.500.85,1298014492131145901701601341341201201.002.500.900.859.00400320651,5001,0002001,300221,90090090.04.500.85,0%0%0%0%0%0%0%0%-9%-7%-3%-8%-8%0%0%0%0%0%0%0%0%0%0%0%0%3%0%0%0%0%0%,Source:Credit Suiss
27、e estimatesOur analysis suggests that many commodity prices have run ahead of their fundamentals,with a combination of supply shocks(grains,oil and platinum)and a substantial relief rallypushing prices above levels that would normally be associated with the still well-belowaverage growth seen in 3Q.
28、This suggests that unless we see a rapid rebound in globalgrowth(considered unlikely)many prices will consolidate the recent gains over 4Q,withthe risk of a substantial correction if,as we expect,the pace of the growth rebounddisappoints.Moving into 2013,our base-case scenario is for global growth t
29、o continue to graduallyimprove,moving above average in 2H13.This is likely to see most industrial commodityprices recover a little although the risks remain to the downside.With growth unlikely to return to the pace seen in the 2000s,the commodity bull market isover.Despite this,many opportunities r
30、emain,with prices likely to move substantially overcoming months and years,with large variations in intra commodity performance.Summary of the outlook for individual commoditiesCrude Oil modest upward revisionFrom bullish to bearish and back again,the Brent market,and many analysts(includingus),have
31、 spent the past year oscillating between two extremes.Zoom out from the day-to-day market swings,however,and it quickly becomes apparent to us that Brent hasessentially moved sideways in a large range since late 2010,with quarterly average pricesfalling between$105 and$120 for seven straight quarter
32、s.Given this,in adjusting our forecast we are mostly marking to market the balance of theyear and keep our quarterly averages for 2013-14 within the$105-120 price range.Though oil demand should continue to recover modestly,swing-producer Saudi Arabia islikely to continue to massage supply(with or wi
33、thout the aid of strategic petroleuminventories)so that prices do not stray far from their“acceptable”price range.Of course,there are still a multitude of risks,both bullish and bearish,arrayed to either side of ourbase-case scenario.Large Cap Resources,4,15 October 2012,North American Gas unchanged
34、,Enhanced sensitivity of coal-to-gas switching to natural gas price levels has kept summergas prices range bound.The views we expressed in our quarterly outlook found at leastpartial support,as year-on-year(YoY)power demand growth ebbed and flowed with gasprices above and below$3/MMBtu in the third
35、quarter.By that same dynamic,however,recent strength in 4Q 2012 futures prices could reverse parts of the YoY upside in winter2012-13 power demand.Add surprisingly strong supply,and we remain worried.,We generally think gas prices modestly improve into 2013 as storage levels push towardsmore normal
36、levels.But we cannot turn bullish relative to the forward curve in the short tomedium term(i.e.,before 2015),until we see pronounced declines in US gas supply.Andso,despite the recent upturn in US gas prices and despite having undershot actual pricesin the third quarter of$2.81/MMBtu by 30 cents(12%
37、)in 3Q,we are leaving our relativelysubdued forecast through 2014 unchanged and note further downside risk.,Bulk Commodities,Iron Ore large downward revision,The era of windfall pricing for iron ore miners has come to a close.Although there remainsroom for a cyclical price increase in early 2013(to
38、a quarterly average of US$120/t in 1Q),aided by seasonal factors and a restocking phase,we believe the market is witnessing astructural shift to lower prices,reflected by the steady ebbing of spot prices in our base-case view.Even with 4%p.a.global steel production growth,firmly planned expansions t
39、oiron ore supply far exceed incremental demand and can only be accommodated bydisplacing existing marginal sources of production and halting installation of unnecessary,new mines.If Chinas higher-cost supply proves harder to dislodge than we currently,forecast,or world steel production fails to step
40、 up from recent growth rates of 2.2%p.a.,the scene would be set for fierce competition between suppliers and a more precipitousfall in prices to rebalance the market.,Metallurgical Coal modest downward revision,Metallurgical coal has suffered a sharp fall over the past three months,with spot volumes
41、trading below US$150/t FOB Australia and benchmark quarterly contracts settling at$170/t,down from$225/t.With the demand-side dynamics of iron ore and the supply-sidedynamics of thermal coal,met coal has endured particularly torrid short-term fundamentals,from which we forecast only a modest recover
42、y gradually back towards$190/t by 2015.,Continued supply surpluses in coming years,combined with the aforementioned lowergrowth profile for steel production,make it unlikely that met coal will return to pricessubstantially above$200/t.,Thermal Coal modest downward revision,Prices are expected to rem
43、ain trapped in a subdued range for the remainder of this yearand into 2013,supported by marginal costs of production and relatively robust demand onthe one hand,yet capped by a persistent surfeit of supply on the other.The market should,however,move into a more balanced position through 2013,creatin
44、g the possibility forprices to stabilize around US$100/t in late 2013 and into 2014.At this point,price volatilityshould also return to the coal market,with the loosening of these fundamental caps andcollars.,Large Cap Resources,5,15 October 2012Energy more defensive than iron ore,copperChina steel
45、growth rates revised downIn this round of quarterly price forecasts we have revised down our assumed China steelproduction estimates to around 5%p.a.over the next three years and this sees compoundworld steel consumption run at around 4%.Our forecast remains consistent with our viewthat trend growth
46、 rates of Chinas steel production(effectively demand)are structurallymoderating,but that steel demand in China is still some years away from its final peak.The iron ore supply side remains profitable and supply side expansion will see iron oreprices move back to our assumed long run levels(US$90/t C
47、hina fines,CFR)as early asmid-2014.Copper also looks to be moving into surplus as mine supply expands,althoughhypothetical incentive pricing for copper is now around US$6,500/t($3/lb.).Crude oil in a trading range,gas prices to trade upA modest recovery in oil demand and ongoing Saudi producer disci
48、pline should keep oilprices in a relatively narrow trading range compared to the bulk commodities.Meanwhile,Japanese demand should underpin global LNG prices and US gas prices should recoveras the current production cutbacks take effect(although we remain less positive on USgas prices than current m
49、arket forward pricing curves).,Figure 4:Delta to spot re CS forecasts 201325%20%15%10%5%0%-5%-10%-15%-20%2013Source:Credit Suisse estimates,Figure 5:Delta to spot re CS forecasts 201450%40%30%20%10%0%-10%-20%-30%-40%2014Source:Credit Suisse estimates,Earnings for the diversified miners fall sharplyR
50、io Tinto sees the largest earnings downgrade,down 39%in FY13-14 mainly due to our25%lower assumed iron ore price in 2013-15.With 78%of Rios earnings derived fromiron ore ion FY11-12,this should come as no surprise.Moving out to FY14,Rio becomesa more diversified commodity exposure with Iron Ore acco
