* Commodities
- Bulks have entered a multi-year trough, and have not reached the bottom
- There are some positive fundamentals in the base metals. We're constructive on copper in 2015
- For precious metals, we expect steady pricing in gold with bearish low inflation and USD strength offset by strong Asian demand and the slowing mine production
* Metals & Mining
- Earnings cut, yet to reach the trough
- Action: We downgrade estimates heavily with large cuts to our iron ore and coal forecasts. A fair amount of pessimism is already priced in and large cap DY's averaging over 5% (top end of the market) should provide a degree of valuation support together with ongoing capex reductions. However, we expect iron ore prices to move lower again in H215, we are up to 30% below consensus and dividends, with the exception of GLEN, are uncovered by FCFs on our estimates.
- Stocks: From our European coverage GLEN and BOL are Outperform rated. Both offer strong cash flows and exposure to preferred base metals; we forecast a balanced copper market in 2015/16 and continue to expect a zinc deficit 2015-17. We downgrade: BHP (from N to UP): valuation is expensive at c30x spot PE with the market pricing in a recovery in oil prices to over $70/b and capex will need to be cut further, increasingly at the expense of future growth. Anglo (from OP to N): we have tempered our bullish call for now. We continue to see value medium term but balance sheet concerns will persist until assets are sold. We retain our N rating on RIO.