Australian Resources Weekly provided by Australian market analyst UBS.

What are consensus estimates telling us?

Consensus estimates versus spot prices:

Bloomberg data suggests spot is lower than consensus estimates for lead (-25%), nickel (-23%) and zinc (-19%) and higher than consensus estimates for copper (5%) and oil (28%). The implication is that there could be downside risk to zinc, lead and nickel, if prices do not rise from current levels and hence a negative impact on the stocks exposed to these commodities.

Current consensus estimates versus prior consensus estimates:

We compiled consensus estimates data for various commodities as of today and at the beginning of the year. Consensus estimates for the period 2008-10 have increased considerably for gold, WTI and aluminium, but marginally for nickel and copper. Estimates for zinc during the period have actually fallen considerably.

Reflects a cautious view in our opinion:

YTD prices as well as consensus forecast estimates have increased for gold, reflecting investors' preference for a safe haven investment in the current inflationary environment. Increasing aluminium prices are reflective of increasing energy prices. Consensus expectations of copper seem to reflect concerns on global economic growth and weak global demand of the bellwether metal.

Investment view:

We prefer coal, precious metals, and energy, followed by the base metals: copper and aluminium. Some of UBS preferred stocks exposed to precious metals are LGL and AVO and to energy are WHC, GCL, ROC, AWE and WPL.

UK Takeover Panel Disclosure: UBS Limited is acting as financial adviser to BHP Billiton with regard to its proposed combination with Rio Tinto