Material Matters: Gold, Copper, Oil & Coal

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Analysts see an opportunity within the Australian Gold sector; Cit’s subdued copper price outlook; downside pressure for oil; and the outlook for metallurgical coal.

-The opportunity within the ASX Gold sector
-Subdued copper price outlook, according to Citi
-Downside pressures post an oil price rally
-The outlook for metallurgical coal

By Mark Woodruff

The opportunity within the ASX Gold sector

While the Australian dollar gold price has been trading at record highs, Ord Minnett recently highlighted domestic currency weakness has driven a disconnect between Australian gold equities and gold price movements, as passive holdings typically move on US dollar pricing.

Should Australian gold miners deliver on production targets, the analysts anticipate higher margins will attract more attention from bottom-up fundamental investors.

After the around 40% gold price rally during 2024 in Australian dollar terms (circa 30% in US dollars), Goldman Sachs also noted last week both Australian and global gold equities underperformed by around -10% on average over the year.

This broker has retained a constructive outlook on the gold price into 2025/26, partly due to structurally higher central bank demand and cyclical support from a gradual boost to ETF holdings as the US federal funds rate declines.

As gold price increases are expected to outpace cost escalations over the next 12 months, Goldman anticipates its Australian gold coverage will benefit from a growing cash harvest, strengthening balance sheets, increasing capital returns, and potential merger and acquisition opportunities.

Highlighting sensitivity of the broker’s gold price forecasts to interest rate change, Goldman now forecasts a US$3,000/oz price from mid-2026 versus December 2025 previously.

This adjustment reflects an updated expectation for -75bps of interest rate cuts in 2025, compared to -100bps previously.

Predicting gold prices are more likely to be sustained at elevated levels, Goldman also raised its long-run gold price to US$2,300/oz from 2029 onwards.

Among large caps, the analysts have a Buy rating on Newmont Corp ((NEM)) and Northern Star Resources ((NST)), which have some of the stronger gold production outlooks, while Gold Road Resources ((GOR)) and Bellevue gold ((BGL)) earn the same rating within mid-cap gold miners under coverage.

Overall, mid-caps have a higher average earnings sensitivity to gold pricing within the broker’s coverage. Sell-rated Regis Resources ((RRL)) has the highest net asset value (NAV) price sensitivity due to a shorter mine life and higher costs.

Goldman highlights Newmont Corp and Neutral-rated Evolution Mining ((EVN)) both have an attractive long-term cost profile, with the latter’s copper by-product supporting the lowest costs in the sector.

Calming nervousness prior to the return of President Trump, Citi recently explained a tariff on gold imports by the new administration is highly unlikely given its reserve asset status.

Subdued copper price outlook, according to Citi

Base metals investors are awaiting greater clarity on US trade tariffs, speculating on the direction and quantum of US interest rate cuts, and evaluating the likelihood of further Chinese policy easing measures.

Citi recently noted commodities overall continue to trade robustly, despite the US dollar index reaching a two-year high of 110.18 on January 12. The broker attributes strong early-2025 trading in metals to the bullish effects of pre-tariff front loading.

Late-2024 strength in consumption growth was related to temporary factors, in the broker’s view, suggesting cyclical copper demand growth will likely remain depressed through 2025.

Recent temporary factors boosting consumption include not only pre-US tariff demand frontloading, but also fresh China trade-in-policy optimism, explained Citi. The latter is a government initiative aimed at boosting domestic consumption by encouraging consumers to replace old goods with new ones.

Copper consumption faces growing headwinds from expected tariff hikes and payback of frontloaded demand, which the analysts feel has bolstered metals consumption in recent months.

Copper prices fell -11% in the final quarter of 2024 though a -10% fall in the Australian dollar helped offset the downside for some miners domestically.

LME copper has held around US$9,000/t in recent weeks and the broker forecasts prices will ease to US$8,500/t during the first quarter of 2025 on growth headwinds from higher US tariffs, rising debt service burdens in developing markets, and economic challenges in China.

Regarding stimulus in China, which has potential to boost metals demand, Citi is expecting only modest and reactionary policy announcements in response to US trade policy.

Downside pressures post an oil price rally

The oil market remains hesitant to price in a sustained deficit or high prices, according to Citi’s observation due, to expectations of an oversupplied market in 2025, high spare capacity levels, and the potential for geopolitical de-escalation and US energy supply stimulus from the incoming Trump administration.

Despite a strong US dollar, Brent oil prices rallied by US$9/bbl to US$81/bbl between Christmas and the second week of 2025. Sector analysts attribute this increase to pre-tariff front-loading and the impacts of both actual and fear-driven sanctions. The latest price is around US$80/bbl.

Should all potential policy changes by the new Trump administration be taken at face value, RBC Capital Markets can make a case for Brent pushing into the upper US$80/bbl range.

Reassuringly, the analysts note oil markets have faced this scenario multiple times in recent years, and supply chain resilience has consistently outperformed.

Moreover, Chinese demand has been underwhelming through the fourth quarter of 2024, highlighted RBC.

Pricing for US WTI oil also rallied sharply relative to  non-US counterparts in the first few weeks of 2025, noted Citi recently, as the market priced in a higher likelihood of US tariffs on imports.

WTI/Western Canadian Select (WCS) oil differentials had increased, explained the broker, in part reflecting potential country specific tariffs that may be imposed on Canada. [On President Trump’s first day in office he reiterated a 25% tariff would be slapped on Canada, commencing February 1].

The analysts forecast the WCS discount to WTI oil prices could widen by as much as -US$15/bbl to nearly -US$30/bbl, compared to downside of between -US$2.5-5/bbl if no tariffs are placed on Canadian oil.

Highlighting tight links between energy systems of the US and Canada, Citi noted a 25% import tariff on Canada, including energy, would negatively impact some US refiners, while consumers could face at least 25% higher crude and gasoline/diesel prices.

The latest round of sweeping new US sanctions also target nearly 30% of Russian crude oil exports, threatening up to between -300-800k barrels per day supply, according to Citi, depending on longevity and Russia’s reaction.

Available capacity levels across storage sites implies to the broker Russia could stand current production levels for about two months before production shut-ins occur.

President-elect Trump is also seen adding to downside pressure on the oil price.

On no less than eleven occasions on January 9, noted Citi, Trump identified lower energy prices as the key factor needed to address to inflation, cost of living, and interest rates in the US.

The outlook for metallurgical coal

Despite the prospect of peak year-end steel demand, metallurgical coal prices were weak in the fourth quarter of 2024, and Ord Minnett believes challenging market conditions for hard coking coal (HCC) are unlikely to abate.

HCC premium low volatile (PLV) prices softened to around US$200/t during the final quarter and lower-rank coals achieved steep discounts.

In contrast, the commodity team at Morgan Stanley recently highlighted Chinese steel production seasonally has picked up into the first quarter of 2025 and coking coal inventories at Chinese plants/steel mills are at relatively low levels.

This broker also anticipated positive conditions for steel/met coal upon any additional announcements for stimulus benefiting infrastructure or steel-intense consumer goods such as vehicles or air conditioners.

Met coal demand could also be boosted in the new year from infrastructure spending in India, making up for under-budget capital spending by central governments in the last quarter of 2024, explained the analysts.

Morgan Stanley is forecasting HCC prices in the first quarter of 2025 at US$210/t and US$209/t in 2025.

Offering 63% FY25 met coal revenue exposure, Whitehaven Coal ((WHC)) shares are currently considered “cheap”, implying a low HCC price of US$180/t.

For the longer-term, India is becoming an increasingly important market, in the broker’s view.

The country is forecast to account for 29% of export demand by 2030, up from 20% in 2024, while China’s share is projected to fall to 27% from 30% over the same period.

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