Improving macro indicators. Demand for commodities is likely to remain subdued in 1H09. However, there have been signs that suggest that the bottom could be in sight. The Baltic Dry Index (BDI) recently staged a strong recovery, jumping over 50% from its Dec 08 low to cross the 1000 mark. De-stocking and production cut-backs have led to lower inventory levels, while steel mills in China are gradually resuming operations. In addition, the effects from China's RMB4tr economic stimulus package are expected to kick in from 2H09, bolstering demand for metals and energy. Strong credit metrics boosts endurance. We are of the view that it is premature to draw conclusions to a sustained recovery for commodities, given the uncertainty surrounding the global economic environment.

Nevertheless, we believe that Noble Group Ltd (Noble) will be able to manoeuvre the uncertain operating landscape, and ride on its recovery, given its scale, robust risk management system and product diversity. Falling commodity prices will ease working capital requirements and reduce its need for debt. Its strong balance sheet with low gearing of 4% (after adjusting for readily marketable inventories) will enable it to weather the ongoing credit crunch, and its ample cash position eliminates near term refinancing risk.

Dwindling global trade could dampen volumes. While Noble remains in good shape to tide through the current turbulence, it is not immune to dwindling global trade and demand. The credit crunch has crimped global trade and remains a major obstacle hampering the industry. Faltering production has led to a slump in demand for metals and energy. We have moderated our FY09 estimates to account for weaker contribution from its Energy and Metals, Minerals and Ores (MMO) segments, bringing our FY09 earnings estimate 14% lower to US$458.6m.

BUY, with a lower fair value of S$1.58. Noble's FY08 results are slated for release on 26 Feb. We are forecasting a 136% surge in earnings to US$609.9m, including gains from its Portman sale. Key aspects to watch out for include its earnings growth against a climate of falling commodity prices, cash levels and net gearing. Performance of the group's MMO segment is likely to draw scrutiny in light of tumbling demand for metals. We anticipate further liquidation of its MMO inventories in response to weak global demand. We maintain our BUY rating on the stock, but trim our fair value estimate to S$1.58 (from S$1.83) on the back of lower FY09 earnings expectations.