Material Matters: Iron Ore; Gold, Critical Minerals & LNG

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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.

Critical Minerals

China has reportedly banned exports to the US of critical minerals including gallium, germanium and antimony. The Chinese Ministry of Commerce has also requested stricter review of end use for graphite items shipped to the US.

Macquarie believes the restriction could reignite the concerns of supply security, improving market sentiment for ex-China critical minerals companies.

Syrah Resources ((SYR)) is the only natural graphite producer of scale outside China, though current production (campaign mining) at Balama is well below 350ktpa capacity due to industry headwinds. The broker believes Syrah could benefit from increased ex-China demand and the ramp-up of Vidalia.

Macquarie suggests Talga Group’s ((TLG)) location in Sweden is a key market differentiator, allowing the company to leverage EV demand and battery growth in Europe.

Lynas Rare Earths ((LYC)) is the largest separated rare earths producer outside of China, which would allow Lynas to command a premium associated with its processing capabilities, in Macquarie’s view. The company will start to produce separated dysprosium and terbium from its LAMP facility in 2025, a near-term catalyst for the company.

Macquarie continues to see upside to Iluka Resources ((ILU)), with the EP3 project update a key near-term catalyst. Either securing additional government funding or project cancellation would present valuation upside to Iluka, in the broker’s view.

Meteoric Resources ((MEI)) is an emerging rare earths company, Macquarie notes, with a pre-feasibility study due in first quarter 2025 a near-term catalyst for the company.

Next Wave of LNG

High prices over the last few years have triggered a new cycle of investment in LNG, Morgan Stanley notes, with more than 150mtpa of capacity under construction. For a market that is currently some 400mtpa, this is significant supply growth.

Global demand has surprised to the upside while a series of project delays have pushed out the timeline for new capacity. This has deferred “peak” oversupply risk to the second half of 2027 or 2028 versus 2026 prior, the broker suggests, and it is possible more project delays and/or strength in demand ultimately end up pushing this out even further.

Delays at key projects around the world, including in the US and Middle East, have moderated the rate of supply adds over the next few years. While Morgan Stanley continues to forecast some 175mtpa of global capacity additions throughout 2024-30, average annual additions for 2025-26 are now around 23mtpa — more in-line with historical expansion cycles.

Global demand (ex-Europe) has grown more in 2024 than during the prior three years combined. Non-EU LNG demand growth averaged 3% annually over the 2021-23 period. So far in 2024, this has accelerated to 10%, led by Asia. Looking ahead, demand growth should slow somewhat, Morgan Stanley believes, but remain strong versus history.

Prices should still soften, in the broker’s view, but with less downside.

Morgan Stanley’s 2025 base case reflects a -50% year on year decline of Russian pipeline flows into the EU due to the pending expiration of the Russia-Ukraine transit agreement. This would leave the TurkStream pipeline as the only remaining Russian gas route to the EU.

If the agreement instead gets extended, it would push the broker’s 2025 global LNG balance from -3mt undersupplied to a 5mt surplus, creating more downside risk to prices. A ceasefire in Ukraine, if it creates a path to bring more Russian supply back to market, is also a risk.

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