Material Matters: Nickel, Copper & Gold

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A glance through the latest expert views and predictions about commodities: nickel prices nearing a floor; opportunities in copper & Morgans’ gold sector preferences.

-Has the bottom been reached for nickel prices?
-Copper price retracement creates opportunities
-Morgans’ gold sector preferences

By Mark Woodruff

Is the bottom in for the nickel price?

The nadir for nickel pricing may be approaching, exclaims Morgan Stanley, with the broker’s year end price target of US$16,000/t already been met.

Despite potential for short-term rallies as a lot of bad news has already been priced into the market, elevated nickel inventories and a challenging demand environment limit the sustainability of any nickel price rally, in the broker’s view.

Global nickel exchange inventories have surged 67% so far in 2024, reaching the highest levels since November 2021.

At the same time, the analysts also see limited further downside to nickel pricing after a pullback in prices to around the 70th percentile of the cost curve, a level where nickel has historically found support.

Morgan Stanley concludes pricing might remain range bound for the time being, noting the current nickel price is now back close to lows for 2024, after a brief rally back above US$$21,000/t.

Weighing on the nickel price, lithium iron phosphate (LFP) batteries continue to gain market share, explains the broker, causing the share of nickel-bearing batteries in global deployment to fall to 53.6% in June, the lowest since April 2018.

While stainless steel still accounts for around 70% of global nickel demand, the mantle of key growth driver has passed to batteries, explains Morgan Stanley, which currently account for around 16% of nickel demand.

China’s output of stainless steel has been robust so far, yet elevated inventories are likely to create an overhang going forward. Morgan Stanley also sees downside to European stainless steel output.

Low nickel prices are triggering supply responses such as BHP Group’s ((BHP)) suspension of its Nickel West division in July, while ongoing production challenges in New Caledonia and weather impacts in Indonesia are tightening up supply, bringing downside risks to projected surpluses for 2024 and 2025.

Copper prices: opportunities after the fall

While Macquarie highlights the recent pullback in spot copper prices to US$3.94/lb, notes potential future volatility, and lowers short-to medium-term copper price forecasts, the broker also points to opportunity for investors to gain share price exposures at current levels.

Certainly, the analysts expect no pause in copper M&A activity as the major miners transact on long-term pricing, as evidenced by BHP Group’s recent pairing with Canada’s Lundin Mining to expand their copper operations in South America by acquiring Filo Corp. The broker leaves its long-term US$4.08/lb forecast unchanged.

Due to weaker global demand and a slight increase in production, Macquarie lowers its 2025, 2026, and 2027 copper price forecasts by -5%, -4% and -2%, respectively, to US$4.16, US$4.16 and US$3.76/lb. The broker’s new copper price estimates are now lower than consensus across 2025-27 by -10%, -12%, and -21%, respectively.

The analysts revise down 2024 Chinese copper demand growth forecasts to 1.2% from 2.9% driven by lower construction and electrification end-use demand, and also lower North American demand growth to 0.5% from 2.5% due to deteriorating economic conditions and a potential US recession.

For stocks under coverage by Macquarie, the biggest casualties in terms of target price are the commodity pure plays Sandfire Resources ((SFR)) and Capstone Copper ((CSC)) with respective falls of -5% to $9.40 and -6% to $12.40.

Capstone Copper remains the broker’s top pick in the sector among larger caps due to its strong organic growth and potential for portfolio optimisation.

The impact of Macquarie’s lowered copper price forecasts on the major miners like BHP Group, Rio Tinto ((RIO)), and South32 ((S32)) is relatively small with falls in targets of between -1-2%. The impact on gold companies (with copper exposures) like Newmont Mining ((NEM)) and Evolution Mining ((EVN)) is also minor.

Among the smaller names, 29Metals ((29M)) and Aeris Resources ((AIS)) display the largest downside to copper price changes due to their comparably high-cost operations and leveraged balance sheets, caution the analysts.

To access Macquarie’s latest target prices for the above-mentioned stocks, as well as for copper exposures Aurelia Metals ((AMI)) and Carnaby Resources ((CNB)), subscribers may refer to the FNArena Broker Call Report (dated August 12) or go to Stock Analysis.

Morgans’ gold sector preferences

Since mid-February, the Australian dollar and US dollar gold prices have risen by 19% and 17%, respectively, as global conflicts fuel uncertainty and demand for the precious metal, explains Morgans.

Buying by central banks adds a further tailwind, along with uncertainty around interest rates and sticky inflation. Adding to gold’s attractiveness, speculators are anticipating rate cuts in the second half of 2024.

While sustainable and growing production profiles for stocks like Red 5 ((RED)), Westgold Resources ((WGX)) and Catalyst Metals ((CYL)) demand a premium as spot prices generate strong cashflows in the immediate term, reserve profiles are more valuable in the longer-term as consensus long-term forecasts increase, highlights Morgans.

Reflecting gold spot price gains, average gold sales in the June quarter for the ASX Gold sector lifted to $3,413/oz from $3,070/oz.

Achieved sale prices were further complemented by hedge book closures/restructuring for certain stocks including Catalyst Metals, Bellevue Gold ((BGL)), Capricorn Metals ((CMM)), Regis Resources ((RRL)), and Westgold Resources.

While cost pressures persisted in FY24, despite easing supply chain issues, the metric for average all-in sustaining cost (AISC) per ounce for producers fell by -1% over the June quarter.

The nickel sector downturn has allowed for increased availability of both people and equipment to enter the previously tight market, explain the analysts.

Persistent cost or operational bottlenecks may place pressure on margins (relative to peers) for companies trading on multiples that imply significant growth such as Bellevue Gold, Genesis Metals ((GMD)) and Pantoro Ltd ((PNR)), cautions the broker.

Standouts with the lowest AISC’s, notes Morgans, are Ramelius Resources ((RMS)), Capricorn Metals and Northern Star Resources ((NST)).

At the other end of the spectrum for AISC are Ora Banda Mining ((OBM)) -which recently missed AISC guidance due to weather events during ramp-up- and Genesis Minerals ((GMD)) which continues to accelerate its growth strategy at Leonora and in the Laverton region, explains the broker.

At the smaller end of the market, Morgans prefers Catalyst Minerals, Red 5 and Westgold Resources.

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