Material Matters: Rare Earths, Coal & Contractors

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This story features LYNAS RARE EARTHS LIMITED, and other companies.
For more info SHARE ANALYSIS: LYC
The company is included in ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

Prices for rare earths surge; Middle East conflict impacts coal pricing; and onwards and upwards for contractors.

• Rare earth prices surge as supply risks tighten
• Thermal coal gains support as met coal markets remain oversupplied
• Contractor cycle seen extending on mining, energy and AI spending

By Mark Woodruff

Rare earth prices surge as supply risks tighten

Rare earth prices have recovered strongly through late-2025 and early-2026, driven by geopolitical tensions, supply chain fragility and a tightening structural supply deficit.

The analyst at Argonaut explains demand from electric vehicles, offshore wind, robotics and artificial intelligence continues to strengthen the long-term outlook.

As China controls around 90% of global supply, it’s noted Western economies are increasingly seeking to establish independent mine-to-magnet supply chains.

Neodymium-praseodymium (NdPr) prices have risen roughly 100% over the past year to around US$120/kg, prompting Argonaut to raise its medium- and long-term NdPr price forecasts.

Estimates are raised by between 14-65% through the decade and are expected to peak near US$140/kg before settling at a long-term price of US$95/kg, up from a prior US$80/kg.

The broker also expects dysprosium (Dy) and terbium (Tb) prices to roughly double over time due to tight supply and strong demand in magnet supply chains.

For the uninitiated, NdPr is the core material for permanent magnets, while Dy and Tb are respectively like performance upgrades providing heat resistance in magnets and acting as an ultra-high performance magnet additive.

Foreign exchange assumptions partly offset forecast earnings upgrades for stocks under Argonaut’s coverage in the Rare Earths sector. The long-term forecast for the Australian dollar is increased to US$0.70 from US$0.65.

The broker remains cautious on established producers such as Lynas Rare Earths ((LYC)) and Iluka Resources ((ILU)), maintaining respective Sell and Hold ratings, arguing current valuations already reflect stronger prices.

Earnings forecasts are materially raised for Lynas Rare Earths given the company’s strong leverage to NdPr sales. Near-term earnings forecasts for Iluka Resources are lowered ahead of the Eneabba ramp-up, reflecting currency impacts on the mineral sands division.

Greater upside is anticipated for developers with a preference for Meteoric Resources ((MEI)) and Brazilian Critical Minerals ((BCM)), whose targets are increased by 37% and 56% to 48c and 14c, respectively.

Positive views are also maintained on niobium exposures WA1 Resources ((WA1)) and Encounter Resources ((ENR)), with currency headwinds leading to modest price target downgrades to respectively $26 and 75c.

Argonaut has Speculative Buy ratings for Brazilian Rare Earths ((BRE)), Northern Minerals ((NTU)), Meteoric Resources, Brazilian Critical Minerals, WA1 Resources, and Encounter Resources.

Thermal coal gains support as met coal markets remain oversupplied

The Middle East conflict remains the key catalyst for US and seaborne coal prices, highlight analysts at UBS.

Should tensions persist into next month, the broker believes thermal coal prices may rise further and decouple from metallurgical coal, leaving the risk-reward profile for thermal coal materially more attractive this year.

Amid heightened energy market volatility, the analysts cite conversations with a market expert who suggested -4-10mt of US supply could exit the met coal market.  This would be mainly High Volatile B (HVB) coking coal volumes shifting into thermal markets alongside low-margin US production facing pressure.

Global GDP is seen as the best proxy for met coal demand. With growth around 2.5%, the market faces pressure from mine restarts and production ramp-ups, leaving supply ahead of demand.

Trade restrictions are also widening price discounts, with US coal excluded from China and Russian coal restricted in Europe, resulting in deeper discounts versus the Queensland benchmark.

Met coal markets remain fundamentally oversupplied, according to said expert, making a sustained price move above US$230-240/t unlikely over the next 12-18 months, with US Low Volatile (LV) coking coal expected to remain below US$200/t.

Short-term optimism for thermal coal is driven by the substitution trade. Here, European government policy is seen as key, particularly how authorities manage gas storage levels.

European gas storage stood near 30% as of March 3, down from 40% last year and close to ten-year lows, highlights UBS.

To address this imbalance, governments may need to intervene by diverting gas away from power generation and running coal-fired plants at full capacity.

It’s felt this would support both Northwest European thermal coal (API2) and Title Transfer Facility (TTF) European gas prices.

At the same time, the broker highlights Asian markets have been caught off guard and are now competing for supply.

UBS explains if TTF European gas rises above the Japan-Korea Marker (JKM) liquefied natural gas benchmark, API2 would narrow its discount to Newcastle 6,000 kcal thermal coal (NEWC6000) prices, while the opposite would occur if JKM LNG trades above TTF European gas.

The analysts leave their 12-month targets unchanged for Neutral-rated BHP Group ((BHP)) and Buy-rated Coronado Global Resources ((CRN)) which primarily sell metallurgical coal used in steelmaking, though the mix varies by company.

Whitehaven Coal’s ((WHC)) target and Sell rating are also kept. This company produces a mix of thermal coal (55%) and the remainder metallurgical coal after acquiring BHP’s Daunia and Blackwater met coal mines in April 2024.

Contractor cycle seen continuing on mining, energy and Ai spending

Macquarie’s review of ASX-listed contractors highlights generally solid financial reporting throughout February, supported by strong demand, improving margins and robust balance sheets.

The broker believes the sector cycle still has further to run, supported by iron ore sustaining capital, accelerating energy transition spending, increased defence investment, and rising AI-driven infrastructure demand.

Broad demand across multiple end markets, combined with more disciplined bidding behaviour, is supporting improved earnings quality and visibility, the report highlights.

Macquarie retains a positive sector outlook driven by both macroeconomic and company-specific factors. Preferred exposures are NRW Holdings ((NWH)), Ventia Services ((VNT)), Downer EDI ((DOW)) and Service Stream ((SSM)).

The broker observes renewed risk aversion following the Middle East conflict, which may favour contractors with greater A&NZ region exposure representing more defensive earnings profiles (in the current context).

For Worley ((WOR)), a higher oil price is typically supportive for the share price given the historical correlation, Macquarie notes, though prolonged conflict raises risks of regional project disruption and broader global economic impacts.

Balance sheets are considered strong across the sector, with share buybacks continuing at Ventia Services, Downer EDI and Worley.

It’s thought key catalysts will be contract awards over the next three to six months, particularly in power infrastructure, mining services and energy transition projects.

Macquarie’s 12-month targets are unchanged even though earnings forecasts are increased for Monadelphous Group ((MND)), NRW Holdings, Downer EDI, Ventia Services and Perenti ((PRN)). Estimates are lowered for Worley, Mader Group ((MAD)), and Maas Group ((MGH)).

All the above-mentioned names have an Outperform rating, apart from Monadelphous after Macquarie recently lowered its rating to Neutral on valuation grounds.

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