In Brief: Budget 2024/25, Iron Ore & Milk

Weekly Reports | May 17 2024

Weekly Broker Wrap: impact of the 2024/25 Budget on critical minerals, listed property and healthcare; iron ore pricing; and dairy fundamentals & pricing.

-Budget 2024/25 impact on critical minerals, property & healthcare
-China’s declining importance for iron ore prices
-Global dairy fundamentals, rising Australian production

By Mark Woodruff

The 2024/25 Budget: impacts on critical minerals

The Critical Minerals Production Tax Incentive stands out as a potentially the most significant item in the 2024/25 Budget for the Resources sector, suggests UBS, but the broker adds there is a need for more detailed guidance to fully understand which parts of the value chain across different commodities will be eligible for a credit.

Focusing on ‘processing and refining’, this initiative aims to incentivise investment in further downstream value-added processing to export higher value critical minerals products, explains Wilsons. This compares to critical minerals exports today which largely comprise lower-value intermediate products.

Eligible recipients can obtain a refundable tax offset of -10% of processing for the 31 critical minerals (including nickel, graphite and lithium) currently listed in Australia. The credit will be available for a maximum of 10 years between July 1, 2027 and June 30, 2040.

UBS indentifies Iluka Resources ((ILU)) as potentially the most positively impacted by these incentives. The company owns Australia's first fully-integrated rare earths refinery at Eneabba, in Western Australia.

Iluka is set to become a global material supplier of separated rare earth oxide (REOs), and processing costs are now expected to fall.

Another potential beneficiary, according to Morgan Stanley is IGO Ltd ((IGO)) via its 49%-owned Kwinana lithium refinery, which may now also achieve lower hydroxide processing costs.

The impact on Lynas Rare Earths ((LYC)) and the slew of local lithium producers is open to interpretation, suggests UBS.

This broker questions why copper was not included in the 31 minerals eligible for the production credit given the commodity's continued importance (and scarcity) in a decarbonised world.

The 2024/25 Budget: impacts on listed property

While the cash rate will be the key driver of any improvement in residential sales activity in the near term, Macquarie believes the 2024/25 Budget housing package, and measures to increase the number of construction workers, should help reduce development time frames over the medium-term, providing a tailwind for residential developers Mirvac Group ((MGR)) and Qualitas ((QAL)).

The requirement for universities to build more student accommodation will also benefit Dexus ((DXS)) and GPT Group ((GPT)), who have recently established a presence in the space, highlights the broker.

Macquarie analysts see a further tailwind for GPT Group, and fellow retail landlords who are more exposed to discretionary categories, such as Scentre Group ((SCG)) and Vicinity Centres ((VCX)), as Macquarie anticipates a 1.5% impact on disposable income from the budget.

Better transport for Western Sydney, courtesy of an additional $2bn of infrastructure funding (including $1.9bn for priority road and rail projects), will be a positive for medium-term completions and tenant demand longer-term. REITS with exposure here are GPT Group, Mirvac Group, Charter Hall ((CHC)) and Goodman Group ((GMG)), points out the broker.

For the REIT sector overall, Macquarie’s key picks are the Outperform-rated Charter Hall, Mirvac Group, and Goodman Group.

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