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UBS Slashes 2009 Commodity Forecasts By Average 37%

November 3, 2008 at 10:12 by Mario

UBS has slashed its 2009 commodity prices forecasts by an average of 37%, in line with cutting expectations for global growth to slow to 1.3% next year, from an earlier forecast of 2.2%.
That prompted considerable cuts to commodity forecasts for 2009 and 2010, with copper expected to trade at an average of US$1.30 a pound (US$2,865 a metric ton) compared with a current price of US$1.90/lb. Oil is expected to average US$60 a barrel in 2009, with iron ore facing a 40% price decline.
“We expect that base metals prices are likely to dip meaningfully below marginal costs in 2009, given the extent to which demand is likely to contract,” UBS said in a client note.
The contraction in credit and finance is unlikely to ease in the near term, UBS said. It expects the impact to continue to reverberate for the next one to two years, capping global growth and resulting in soft demand for commodities.
UBS also trimmed long-term price forecasts for base metals, cutting copper to US$1.50/lb, down 14%, aluminum to US$1.10/lb, down 12%, nickel to US$7.00/lb, down 18% and zinc to 65 cents/lb, down 19% on its previous estimate.
Only gold remained relatively unscathed, even though the systemic risk that supported gold through the credit crisis up until now has somewhat been alleviated by action from central banks.
But those risks haven’t vanished, meaning gold and gold equities will remain of interest to investors, UBS said.
UBS expects gold prices to average US$825 a troy ounce next year, down 15% on the previous forecast.
Bulk commodities, the long-standing preferred picks among analysts, won’t escape downside pressure, with huge production cutbacks among steel producers lowering demand for iron ore and coking coal.
“While the large (iron ore) suppliers are likely to cut back on production in order to mitigate some of the loss in demand, we expect that they will need to cut pricing, effectively giving up the price increase achieved in 2008,” said UBS, expecting next year’s contract price to fall 40%.
Coking coal contract prices will likely fall to US$180/ton, down from US$300/ton this year.

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