Material Matters: Whitehaven, Evolution, Iluka, Santos & More

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A glance through the latest expert views and predictions about commodities: iron ore; coal; base metals; critical minerals; gold; LNG.

-Iron ore price supported
-Coal range-trading
-Base metals and US tariffs
-Lithium bottomed
-Gold risks priced in
-Muted oil price outlook

By Greg Peel

Iron Ore

Over the last month we have seen Australian and Brazilian iron ore exports and Chinese imports remain high, Barrenjoey notes, which has maintained elevated port stocks in China. Chinese steel exports reached an all-time high as Chinese steel production also lifted, which has supported the iron ore price; while steel inventories reached a five-year low, which has also driven a lift in Chinese steel production.

China has accelerated issuance of local government special bonds since August, in a bid to support its infrastructure sector to cushion headwinds from the weaker property sector. Barrenjoey sees the iron ore price being supported by elevated steel production levels, but this should abate as we approach year-end and the seasonally slower winter period.

A resurgence in steel production post winter has Barrenjoey forecasting higher prices in March-June 2025 than consensus, with US$110/t forecast for 2025 versus consensus of US$99/t.

Likely demand softness nonetheless keeps Citi neutral on bulks pricing. This broker has downgraded its 0-3 month price forecast for iron ore to US$100/t from US$110/t. Citi’s expectation for steel-intensive policy action in 2025 is low despite comments regarding more proactive fiscal policy and moderately loose monetary policy.

December is a seasonally strong quarter for iron ore prices as steel mills in China restock ahead of Chinese New Year, notes Citi. However, with high port inventories and steel mills’ focus on profitability and capital management, price action has been muted.

Metals demand is intertwined with China’s stimulus measures. The recent Politburo meeting has set a more aggressive stimulus tone, Morgan Stanley notes, signalling additional easing in late December or, at the latest, ahead of the National Peoples’ Conference in March.

But magnitude and implementation remain uncertain. Morgan Stanley’s economist still expects these initiatives to stabilise growth but remain insufficient in prompting a meaningful inflection in demand.

Among industrial commodities, iron ore is likely to come increasingly into focus in 2025 as Rio Tinto’s ((RIO)) Simandou –the largest project to be commissioned since Vale’s S11D in 2016– is scheduled to start production late in the year. Morgan Stanley expects this mine to expand market surplus progressively, limiting prospects of price squeezes going forward.

That said, the spot price is close to cost support, presenting little downside on the brokers’ base case, unless China’s steel production undershoots.

Iron ore is a good place to hide, Morgan Stanley suggests. Despite higher-than-normal iron ore inventories, steel inventories in China remain lower than 2019 levels creating an iron ore restock opportunity. Iron ore has also shown cost support in the US$90s, capping downside.

BHP Group ((BHP)) becomes Morgan Stanley’s preferred diversified. The broker sees limited disappointment operationally, and the recent copper site visit and Samarco situation are now well understood by the market. The BHP share price is implying an iron ore price of US$88/t versus Rio at US$95/t, on Morgan Stanley’s calculations.

The broker likes Mineral Resources ((MIN)), implying US$65.40/t, and while acknowledging corporate governance disappointment, Morgan Stanley sees opportunity for operational delivery at Onslow and a fully repaired balance sheet supporting the stock.

Fortescue ((FMG)) remains Equal-Weight, with its shares implying US$102/t.

Coal

Hard coking coal is expected to range-trade around US$210-$220/t and Citi believes Indian met coal demand will see an improvement in Q1 2025 as steel output lifts and the broker sees a pick-up in infrastructure spending. Thermal coal is expected to average around US$140/t in the first quarter aided by seasonal winter restocking before normalising to US$130/t in the second quarter.

The met coal price has shown resilience through a weak demand period around US$200/t levels, Morgan Stanley notes. However, the market continues to wait for the price to move, which has suffered from lagged impacts of the Indian elections and Mongolian supply.

Morgan Stanley likes Whitehaven Coal ((WHC)), rating Overweight, mainly on account of stock-specific rather than macro factors. The last quarterly report, which pushed the stock up 5% on the day, showed good operating performance can help the miner perform well in a stable coal price environment, the broker suggests.

Base Metals

The US and global growth outlook is likely to be further challenged by higher US tariffs on Chinese goods imports during the first quarter of 2025, Citi notes, with the potential for higher and/or additional tit-for-tat tariffs. In the face of higher tariffs and resulting weakening in exports, Citi economists see Chinese GDP growth slowing to 4.2% in 2025 from 5.0% in 2024.

US tariff hikes, a restrictive developed market monetary environment, China growth headwinds and easing EV policy support delay a broader recovery in global manufacturing beyond 2025, Citi suggests.

Citi’s base metals price forecasts for 2025/26 are generally lower as the broker pushes out the cyclical recovery: copper down -15%/-9% in 2025/26; aluminium down -4% in 2025/26; nickel down -3% in 2025 but up 6% in 2026; zinc down -5%/-4% in 2025/26, 2025/26 alumina up 31%/13% and manganese down -23%/-5%. From current prices Citi sees the greatest 12-month upside for uranium and NdPr and the greatest downside for alumina.

Morgan Stanley likes copper, while neutral on aluminium. The broker downgrades Sandfire Resources ((SFR)) to Underweight from Equal-weight with the current stock price seen ignoring short mine lives of six-seven years.

Morgan Staley moves South32 ((S32)) to Overweight with the stock offering a forecast FY25 operating cash flow yield of 18% and free cash flow yield of 7.4%, suggesting the Worsley impacts are priced in with upside risk of a positive decision, and even if Mozal shuts down there is around a 3% offset from spot alumina sales.

Critical Minerals

The lithium price has bottomed, Morgan Stanley believes, with supply cuts into 2025 improving the supply/demand imbalance. A catalyst from the demand side is required, however, to add upside, but the broker thinks equities have corrected enough for patient investors to re-enter.

Morgan Stanley moves Pilbara Minerals ((PLS)) to Overweight from Equal-weight with Mineral Resources still the broker’s preferred exposure. IGO Ltd ((IGO)) remains Underweight, although the broker still sees acquisition risk.

Macquarie’s sum-of-the-parts valuation analysis for Iluka Resources ((ILU)) indicates potential value trapped in three key divisions of mineral sands, its rare earths project and Deterra Royalties ((DRR)).

Macquarie assumes the Eneabba rare earth stockpile to have a value of $0.6bn, which is largely in line with Iluka’s assessment at NdPr prices of US$82/kg. The combined net present value of $2.8bn represents around 30% upside to Iluka’s current market capitalisation.

When Eneabba is included, the majority of which would be ascribed to the non-rare earth components in phase 1 and 2, the upside exceeds 70%. In addition to stockpile monetisation, Macquarie believes the stockpile could also be worth more in another’s hands without compromising the ex-China rare earths supply chain strategy.

In lithium, Macquarie notes the 50/50 merger between Piedmont Lithium ((PLL)) and Sayona Mining ((SYA)) is progressing, with Piedmont trading at a premium. The broker expects the gap to close in the near term.

Still on lithium M&A, Macquarie notes in October, Rio Tinto announced an agreement to acquire 100% of Arcadium Lithium ((LTM)) for US$5.85 per share cash. The broker notes Arcadium’s share price has remained below the takeover price.

At the annual Rio strategy day, the company highlighted a more diversified portfolio over the medium to longer term with the bolt-on lithium unit a key contributor. The company was also confident the takeover would secure all key approvals in spite of Chinalco’s shareholding in Rio.

Macquarie expects further clarity on the regulatory approval process in late January with the new US administration.

Gold

As the path of US rate cuts and the US dollar continues to evolve (falling inflation versus Trump’s potential to reverse inflation’s fall), Morgan Stanley sees equities having largely priced the expected near-term strength in gold, prompting the broker to stay on hold.

Morgan Stanley prefers Evolution Mining ((EVN)), which it rates as Equal-weight, on its copper exposure and high free cash flow generation. The broker upgrades Northern Star Resources ((NST)) to Equal-weight from Underweight but the stock remains less preferred.

LNG

In the year ahead, Morgan Stanley sees a muted oil price outlook, but some tightness and volatility in LNG, which best suits Woodside Energy’s ((WDS)) product mix. Santos ((STO)) is the broker’s key Overweight in Australian exploration & production. Beach Energy ((BPT)) and Origin Energy ((ORG)) are least preferred.

Morgan Stanley marks to market for commodity prices and high frequency data, which generally sees lower price targets and earnings estimates, tracking consensus trends. The broker’s 2025 forecasts for Woodside’s earnings and dividend are -16% below consensus, and its target price for Origin is -15% below.

Looking ahead to 2025, Morgan Stanley awaits Karoon Energy’s ((KAR)) strategy update on February 5, Woodside’s Louisiana LNG final investment decision in the first quarter, Beach Energy’s Waitsia 2 first gas in the second quarter, and Santos’ Barossa first gas in the third quarter.

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