Commodities | Dec 05 2024
A glance through the latest expert views and predictions about commodities: iron ore price movements, gold miner preferences, critical minerals supply and LNG production growth.
-Ups and downs for the iron ore price
-Macquarie's gold miner preferences
-China limits critical mineral exports to the US
-LNG production growth significant, but delayed
By Greg Peel
Iron Ore Price
China's high-frequency steel production data have shown a substantial recovery, JPMorgan notes, with output now above the 2022-23 seasonal level. This has been driven by a recovery in steel margins and low steel inventory at traders.
Despite October steel net exports setting a fresh high, apparent demand growth has recovered but remains down year to date. Heading into 2025, should US tariffs on China imports be implemented at 60%, this would likely trigger new stimulus.
JPMorgan economists' base case assumes China tariffs are implemented in the second quarter, coupled with a devaluing renminbi, and this is likely to sustain high steel export volumes into the first quarter. Outside China, rest-of-world steel production is flat year to date.
As Rio Tinto's ((RIO)) Simandou mine ramps up, and China continues to reduce its steel demand, the market will reduce its reliance on marginal iron ore tonnes significantly, JPMorgan notes, flattening the cost curve. The broker's supply/demand model shows the most severe impact after 2027, suggesting there are still two years before prices need to adjust materially lower.
In the nearer term, 2025 should see around an extra 30mt produced, mostly from Mineral Resources' ((MIN)) Onslow mine and Vale.
A pushback against rising iron ore prices into year-end has been the relatively high level of port stocks in China, Morgan Stanley notes, resulting in an elevated stock-to-consumption ratio. While port stocks have yet to move into decline, looking at total steel inventory this broker finds that although stocks were tracking in line with 2020-23 levels until mid-year, port inventories have now started to drop (now close to lows seen in 2019).
As such, into year-end Morgan Stanley sees a possibility that mills and traders may need to start replenishing steel inventories, in turn increasing demand for iron ore, which could come at a time we usually see restocking, in turn helping support prices. Any additions to stimulus in China, which could come as a reaction to heightened trade competition practices, could add further upside.
Morgan Stanley's preferred iron ore play is Mineral Resources (Overweight). The broker is also Overweight on Rio Tinto and BHP Group ((BHP)), while Equal-weight on Fortescue ((FMG)) as green energy and cost pressures create risks to consensus free cash flow forecasts.
Gold Miner Preferences
The Macquarie Commodities Strategy team has upgraded its mid-term gold outlook, now expecting an average quarterly cycle peak of US$2,800/oz in the second quarter of 2025, while maintaining a long-term gold price assumption of US$2,000/oz (real).
Macquarie's base case into 2025 is for gold to initially face ongoing pressure from US dollar strength but to be supported by improved physical buying and steady central bank demand. Thereafter, the broker expects another investor boost as the Fed brings rates down towards 4%.
If Chinese investor buying returns, or markets fear that President Trump's policy proposals could deliver a material deterioration in the US fiscal outlook, the price could quickly challenge US$3,000/oz, Macquarie suggests, with any breaks above October's high liable to be reinforced by systematic momentum buying.
Among the majors, Macquarie has switched its preference to Newmont Corp ((NEM)), noting it is restricted on Northern Star Resources ((NST)) as the latter looks to acquire De Grey Mining ((DEG)).
In mid-caps, Macquarie's top pick is Vault Minerals ((VAU)) as a cash flow growth stock, while Genesis Minerals ((GMD)) is the broker's Australia-focused mid-cap pick, with a growth outlook only exceeded by Capricorn Metals ((CMM)).
Perseus Mining ((PRU)) is Macquarie's top West African pick given strong cash generation.
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