- Cost curves to support some commodity prices
- Sell-off in iron ore looks overdone
- ANZ adjusts iron ore and coking coal forecasts
- Support for thermal coal
- Standard Bank looking for long positions in PGMs

By Chris Shaw

To account for recent price movements across the commodities complex, RBS has compared 90th percentile cash costs to spot prices based on recent cost curves. The analysis shows aluminium prices are the deepest into the cost curve, while copper and met coal prices remain well above marginal costs.

RBS's analysis suggests aluminium, alumina, nickel and iron ore enjoy the most cost curve support, ranging from 8% of iron ore producers with cash costs above spot prices to 39% in the aluminium market.

As RBS points out, in most cases this scenario is not sustainable if medium-term demand growth is to be satisfied. Short-term some inventory de-stocking and potentially some capacity closures may be needed to stabilise markets, but from a longer-term scenario RBS notes demand fundamentals remain intact. This is supportive for prices.

Specifically, RBS suggests in copper the market could endure price falls of more than 30% without triggering any meaningful closures of capacity. The reason spot copper prices remain high is the market is forward looking in nature, RBS noting there is a lack of expected new supply, mine grades continue to fall and strikes continue to disrupt production.

Slowing demand has pushed aluminium prices deep into the cost curve, and with demand growth linked to global economic growth there is risk of reduced demand going forward in the view of RBS. With aluminium inventories also near record levels, a return of some pricing tension in the market may require some capacity closures.

Reduced Chinese imports have impacted on alumina prices, with RBS suggesting prices are now offering no incentive to build new Western world capacity. This implies significant upside risk to prices over the medium-term in RBS's view.

A return to pricing tension in the nickel market may be some way off, as RBS suggests stainless steel demand growth appears unlikely to support nickel production growth near-term.