Asia Essentials

Event

Macquarie’s Commodities team has upgraded price forecasts for aluminium,zinc and lead by 2-15% over FY17-19E, while our Oil team has downgradedmedium-term oil by 9-19%. The new price forecasts drive a change to ourearnings estimates and TPs, although recommendations remain unchanged.

For Indian base metals, a supportive commodity price environment, strongFCF generation and improving cost leadership make a strong case for rerating.

While upside to commodity prices from current levels might be limited,we believe base metals equities have a long way to go and expect they willcontinue to outperform the broader index and metal peers in 2017. Vedanta isour top pick in the base metals space followed by Hindalco and HindustanZinc.

Impact

Upgrading base metal price outlook: Our commodities team has madematerial upgrades to our base metal price forecasts. The supply demanddynamics for base metals continue to improve with demand stability (bothChina and ex- China) and supply interference underpinning strong pricemomentum.