Ord Minnett has raised its earnings estimates for CSR – and its recommendation to Hold from Lighten – following our commodities team's upgrades to its aluminium forecasts.
Aluminium prices have continued to track upwards and now sit at around US$1900 per tonne, up 10% since the start of 2017 and 20% above the year-ago level, while the Japan ingot premium has increased to US$110 per tonne from US$90 since the start of 2017.
Ord Minnett still expects the global supply/demand balance to be in slight surplus in 2017, but increasing expectations of environmental-led curtailments in China are keeping market sentiment constructive. As a result, we now expect prices to continue tracing upwards in 2017 and have raised our quarterly aluminium price forecasts by 5–25% over 2017–20.
We have incorporated our raised aluminium price forecasts into our earnings estimates for CSR, which has driven an average increase in estimates for earnings before interest and tax of 5.4% over FY17–19. We have also taken the opportunity to adjust our building products forecasts, which partially offsets some of our aluminium upgrades.