ndustrial metals are displaying resilience, while base metals are preferred over bulks and precious metals, said Deutsche Bank analysts in a recently published third-quarter preview.
“Base metal commodity prices have displayed resilience in the face of ongoing U.S. dollar strength, with our thesis of lower price volatility playing out,” said DB metals and mining analysts Jorge Beristain and Wilfredo Ortiz. “Of the industrial metals group, we expect nickel, lead and zinc will be the outperformers particularly since these markets have a relatively low exposure to the Chinese property market.”
However, the analysts advised that the 3Q14 earnings outlook is positive for industrial and precious metals. “As a group, we anticipate our upstream M&M coverage to report higher sequential EBITDA in 3Q14, with gains in industrial metals of 7% (or $614m) and precious metals of 3% (or $58m). Among precious metals, silver equities should see sequential gains of 29% ($30m) and gold stocks should increase 1% (or $28m).”
Nevertheless, they added, “Amongst precious metals, the gold outlook remains clouded by our assessment that U.S. real yields, the U.S. dollar and the S&P 500 will all post further advances heading into next year. As such, we prefer base metals over bulks and precious.”
In their analysis, DB noted that China’s decelerating property market continues to be a headwind for industrial metals.
“Industrial metals & energy and precious metals equities continue to be bogged down by China’s muted YTD performance, particularly for those with commodities where surpluses are emerging (copper) and with higher exposure to the Chinese property market (iron ore and metal coal),” observed DB.
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