Analysts Cut Price Forecasts for Copper, Coal and Iron Ore

Mining stocks and other commodity companies will be affected as Morningstar analysts downgrade their forecasts for copper, coal and iron ore off the back of a falling oil price

Daniel Rohr, CFA 16 March, 2015 | 3:51PM
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Cheaper oil, weaker producer country currencies, and industry-specific deflation point to lower mining costs in 2015 and beyond. But with lower costs come lower prices. We've reduced our U.S. dollar-denominated forecasts for copper, coal, and iron ore accordingly.

Cost mix and currency exposure differences mean larger cuts to our price forecasts for coal and iron ore than copper. Freight is a larger share of total costs for these bulk commodities, so the recent cut to Morningstar's long-term oil price, from $100 per barrel Brent to $75, generates more cost relief.

Similarly, we estimate higher local content, mainly labour and services, for coal and iron ore compared with copper. Local currency weakness therefore drives relatively lower U.S. dollar costs for labour and services. We estimate the impact of a stronger U.S. dollar for each commodity based on the depreciation of key producing country currencies. For coal, our long-term forecast for thermal prices falls 11%, from $75 to $67 in real terms.

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Daniel Rohr, CFA  is a senior equity analyst at Morningstar.