HSBC raises 2013 copper price outlook on tighter market

Updated 30 January 2013
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HSBC raises 2013 copper price outlook on tighter market

LONDON: HSBC has raised its 2013 copper price forecast, saying it expects positive sentiment to drive prices for the metal in a structurally balanced market.
The bank lifted its 2013 forecast for the average cash copper price to $ 8,000 per ton from $ 7,500 to reflect the metal’s relatively good start to the year.
“Copper, perennially described as fundamentally tight, actually finished 2012 posting a gain in inventories,” analyst Andrew Keen said in a note to clients.
“This market remains balanced in our view, and this is enough to keep prices high when sentiment is good.”
Benchmark three month copper futures on the London Metal Exchange (LME) were at $ 8,066 a ton at around 1000 GMT yesterday.
HSBC raised its aluminum price forecast by about 5 percent to $ 2,250 per ton, but maintained its view that prices would remain around this level due to a continued structural surplus.
“It would not take a revolution in the rate of global demand growth to fix the structural surplus in aluminum,” analyst Keen said.
Keen expects aluminum to be in a 5.9 million tons surplus over the 2012-2016 period, with the excess absorbed by a compound annual growth rate (CAGR) of 6.2 percent for global demand, and the market could be brought back into balance in one good year of demand.
Three months aluminum on the LME was at $ 2,056 a ton yesterday.
The bank also raised its iron ore price forecasts for this year to $ 123 per ton from $ 105 earlier, saying that the market was probably driven by seasonal restocking by Chinese mills and short-term concerns over supply.
The bank said, however, that it believes the lack of marginal cost support will see weakness for iron ore later in 2013.
Chile’s state copper commission, Cochilco, earlier said Chile is seen producing 5.596
million tons of copper this year, up 3 percent from 2012 levels, as heavy investment in mines in the world’s No. 1 producer pays off.
Cochilco said a pick-up at state copper producer Codelco’s century-old Chuquicamata deposit and the launch of its Ministro Hales mine at the end of the year will help lift
output of the metal, which is used in construction and power generation and transmission.
But analysts have warned that several factors — deteriorating ore grades, delays to key energy and mining projects, and operational woes — threaten forecast production jumps.
Cochilco expects output in Chile, which mines roughly a third of the world’s copper, will rise to 5.754 million tons in 2014 from an estimated at 5.433 million tons last year,
which was an 3.2 percent increase from the year before.
“This is fairly positive news because international estimates said Chile couldn’t reach predicted output and Chile’s production rose 3.2 percent,” Mining Minister Hernan de Solminihac said.

Cochilco had estimated 2012 copper output at 5.45 million tons in November, and de Solminihac had said in April that production would reach a whopping 5.7 million tons. Many analysts at the time had called his forecast too ambitious.
If Chile meets its production forecast, the higher copper supply could “slightly weigh on prices,” said George Gero, precious metals strategist at RBC Capital Markets Global
Futures.
The Andean country will attract $ 100 billion in mining investment in the next 10 to 12 years, a slightly longer time frame than previously forecast, as regulatory uncertainty and energy woes loom as key risks, the Sonami mining association said earlier this month.
Industry experts say Chile is failing to take a firm hand in regulating its mining and energy industries, leaving billions of dollars worth of projects exposed to the risk of lawsuits by local communities.
The forecast for climbing output from Chile comes as some global miners are scaling back investment plans as operating costs soar and the world’s economic outlook remains volatile.
But many miners in the Andean country have major plans to revamp aging mines.
World No. 1 copper miner Codelco has an ambitious investment plan worth roughly $ 27 billion to maintain and ultimately lift production at its copper mines to more than 2 million tons.
In addition, BHP Billiton and Rio Tinto have approved plans for a $ 4.5 billion expansion of Escondida, already the world’s biggest copper mine.
The world’s third-biggest copper mine, Collahuasi, hopes to have a good year and turn the corner to produce more than it did in 2012, its CEO told Reuters recently.
Anglo American’s major growth project, Los Bronces, helped increase the company’s copper production in 2012, a relative bright spot for the global miner.
Cochilco sees copper prices averaging $ 3.57 per pound this year, unchanged from its previous estimate, before dropping to around $ 3.32 per pound in 2014.
Globally, it sees copper output growing 3.3 percent this year, outpacing demand growth, which is seen up 1.5 percent. It expects a 56,000 ton copper surplus in the market in 2013.


Gulf companies challenged by debt and rising interest rates

Updated 22 April 2018
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Gulf companies challenged by debt and rising interest rates

  • Debt restructurings on the rise, but below crisis levels
  • Central Bank of the UAE has raised interest rates four times since last March

There has been an uptick in recent months in heavily-borrowed companies in the Gulf seeking to restructure their debts with lenders. Although the pressure on companies is not comparable to levels witnessed in the region following the 2008 global financial crisis, rising interest rates will eventually begin to have a greater impact, say experts.
Speaking exclusively to Arab news, Matthew Wilde, a partner at consultancy PwC in Dubai, said: “We do expect that interest rate increases will gradually start to impact companies over the next 12 months, but to date the impact of hedging and the runoff of older fixed rate deals has meant the impact is fairly muted so far.”
The Central Bank of the UAE has raised interest rates four times since the start of last year, in line with action taken by the US Federal Reserve. The Fed has signalled that it will raise interest rates at least twice more before the end of the year.
Wilde added that there had been a little more pressure on company balance sheets of late, although “this shouldn’t be overplayed”.
Nevertheless, just last week, Stanford Marine Group — majority owned by a fund managed by private equity firm Abraaj Group — was reported by the New York Times to be in talks with banks to restructure a $325 million Islamic loan. The newspaper cited a Reuters report that relied on “banking sources”.
The Dubai-based oil and gas services firm, which has struggled as a result of the downturn in the hydrocarbons market since 2014, has reportedly asked banks to consider extending the maturity of its debt and restructuring repayments, after it breached certain loan covenants.
A fund managed by Abraaj owns 51 percent of Stanford Marine, with the remaining stake held by Abu Dhabi-based investment firm Waha Capital. Abraaj declined to comment.

 

Dubai-based theme parks operator DXB Entertainments struck a deal last month with creditors to restructure 4.2 billion dirhams ($1.1 billion) of borrowings, with visitor numbers to attractions such as Legoland Dubai and Bollywood Parks Dubai struggling to meet visitor targets.
Earlier this month, Reuters reported that Sharjah-based Gulf General Investment Company was in talks with banks to restructure loan and credit facilities after defaulting on a payment linked to 2.1 billion dirhams of debt at the end of last year.
Dubai International Capital, according to a Bloomberg report from December, has restructured its debt for the second time, reaching an agreement with banks to roll over a loan of about $1 billion. At the height of the emirate’s boom years, DIC amassed assets worth about $13 billion, including the owner of London’s Madame Tussauds waxworks museum, as well as stakes in Sony and Daimler. The firm was later forced to sell most of these assets and reschedule $2.5 billion of debt after the global financial crisis.
Wilde told Arab News: “We have seen an increasing number of listed companies restructuring or planning to restructure their capital recently — including using tools such as capital reductions and raising capital by using quasi equity instruments such as perpetual bonds.”
This has happened across the region and PwC expected this to accelerate a little as companies “respond to legislative pressures and become more familiar with the options available to fix their problems,” said Wilde.
He added that the trend was being driven by oil prices remaining below historical highs, soft economic conditions, and continued caution in the UAE’s banking sector.
On the debt restructuring side, Wilde said there had been a “reasonably steady flow of cases of debts being restructured”.
However, the volume of firms seeking to renegotiate debt remains small compared to the level of restructurings witnessed in the aftermath of Dubai’s debt crisis.
Several big name firms in the emirate were caught out by the onset of the global financial crisis, which saw the emirate’s booming economy and real estate market go into reverse.
State-owned conglomerate Dubai World, whose companies included real-estate firm Nakheel and ports operator DP World, stunned global markets in November 2009 when it asked creditors for a six-month standstill on its obligations. Dubai World restructured around $25 billion of debt in 2011, followed by a $15 billion restructuring deal in 2015.
“We would not expect it to become (comparable to 2008-9) so barring some form of sharp external impetus such as global political instability or a protectionist trade war,” said Wilde.
Nor did he see the introduction of VAT as particularly driving this trend, but rather as just one more factor impacting some already strained sectors (e.g. some sub sectors of retail) “which were already pressured by other macro factors.”

FACTOID

Four

The number of interest rate rises in the UAE since March 2017.