Material Matters: Fertiliser, Nickel & Met Coal

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A glance through the latest expert views and predictions about commodities: Middle East impact on fertiliser; and sulphur for nickel production; Chinese mine disaster impact on met coal; and views on the rare earths market.

• Higher fertiliser prices are hitting farmers today, and food prices tomorrow
• Risk for nickel prices seems to the upside
• Met coal markets in turmoil, with possible wide-ranging impacts
• China continues to dominate rare earths market

By Greg Peel

By Greg Peel

Fertiliser

Global fertiliser prices have risen sharply as a result of the Middle East conflict. In the year to date, note ANZ Bank analysts, prices are up nearly 30% in the US and even more in other markets, to their highest since Russia’s invasion of Ukraine in 2022.

Even so, prices remain just under -20% below the peak reached in early 2022. With the Middle East conflict ongoing, upside risks remain, ANZ warns, particularly as the disruption to energy and fertiliser supplies appears broader than during the Russia-Ukraine conflict.

Rising fertiliser and fuel prices are squeezing farm margins, and this is likely to curb input application rates, weaken crop yields, lower crop production and eventually lift food inflation.

Farmers are facing a double-whammy. ANZ notes, despite rising input costs, grain prices are only up 5%-6% year to date to only half the level reached in the Russia-Ukraine conflict.

This is squeezing farm profitability globally, particularly as margins were already under pressure from subdued grain prices. If the Middle East conflict persists, ANZ warns this pressure is likely to intensify materially.

When prices rise by more than 50%, farmers typically reduce application rates per acre or shift towards less fertiliser-intensive crops. Higher fertiliser costs will also accelerate a shift away from input-intensive grains towards oilseeds and pulses.

Australia’s wheat area is already set to shrink with production facing further downside if tighter input supply and El Nino conditions worsen.

Unlike the Russia-Ukraine conflict, the current escalation in the Middle East conflict is not directly disrupting agricultural production. Hence, the price impact is likely to be delayed. ANZ expects grain prices to rise gradually and remain higher for longer if there is no de-escalation of the conflict.

The impact of these supply disruptions is likely to show up in lower yields, weaker agricultural harvest and eventually, warns ANZ, higher food prices.

Nickel

Another commodity trapped in the Persian Gulf is sulphur, required for High-Pressure Acid Leaching (HPAL) nickel production.

Indonesia’s changing nickel policies, sulphur shortages and competition for power are tightening the nickel market, Morgan Stanley reports.

A more than -30% cut to ore quotas, announced by the Indonesian government in February, puts 255kt of nickel production at risk (6.5% of global).

Sulphur shortages threaten HPAL production (14% of global), with cuts underway across Chinese plants.

Tsingshan has asked nickel pig iron producers to reduce output in June to free up power for aluminium. Tsingshan is the only producer able to switch power from nickel to aluminium, Morgan Stanley notes.

Meanwhile, soaring sulphur prices are driving HPAL operating costs sharply higher.

Indonesia did release more ore quotas during 2025, which could repeat in 2026, with producers able to apply for more through 31 July. The delays to new export taxes and royalties also suggest some flexibility.

HPAL production could also resume if sulphur flows restart. Finally, demand is more lacklustre, with lithium iron phosphate batteries dominating both for EVs and Energy Storage Systems.

Market positioning in nickel is already quite long, and Indonesia may still release more ore quotas in the second half, but Morgan Stanley sees nickel trading in a higher range from here, with potential for spikes if more production is lost.

Met Coal

Last week’s gas explosion at a coal mine in China’s Shanxi province is likely to influence the metallurgical coal market, UBS notes, via supply disruptions from increased safety scrutiny, but also through potential regulatory shifts.

The immediate closure of 25 mines in the area (26Mtpa capacity), and subsequent two-to-seven day closure of 109 mines (122Mtpa capacity), underscores short-term supply interruptions.

Looking forward, historical precedents suggest potentially more significant impacts could stem from nationwide safety inspections and stricter regulations, UBS points out, especially considering the prevalence of underground mining within China’s hard coking coal supply base.

As Shanxi represents the low-cost segment of the global cost curve, any curtailments driven by inspections could constrain domestic supply and provide upward support to met coal prices (used for steel production) in the near term.

Past events nevertheless indicate these effects tend to be relatively modest and short-lived. UBS forecasts met coal prices could rise by approximately US$15-20/t from the current spot level of US$240/t, necessitating higher-cost, less competitive production to address the supply gap.

Additionally, UBS expects increased Chinese participation in the traded (land-borne & seaborne) met coal market, alongside some inventory drawdowns.

Elevated met coal prices would also likely compress steel mill margins, which would likely result in tighter low-grade discounts, impacting more so on Fortescue ((FMG)) and Mineral Resources ((MIN)) over BHP Group ((BHP)) and Rio Tinto ((RIO)), UBS suggests, or, if the margin compression is large enough, reduced steel output could weigh on iron ore demand and benchmark prices.

In terms of stocks most likely to be impacted, UBS suggests Coronado Global Resources ((CRN)) offers the highest exposure to met coal price movements, while Whitehaven Coal ((WHC)) may serve as a lower-risk and more liquid way to play.

Looking across the wider array of metals/minerals, UBS notes the Middle East conflict is supporting higher aluminum, thermal coal and iron ore prices (and energy/shipping costs).

Mineral Resources, South32 ((S32)), BHP, Alcoa (US) ((AAI)), Whitehaven Coal and Fortescue look sequentially better on spot fair value and free cash flow yield.

In precious metals, Catalyst Metals ((CYL)), Pantoro Gold ((PNR)) and Minerals 260 ((MI6)) have the most compelling upside at spot fair value versus UBS’ base case.

Rare Earths

UBS met with commodity consultant Wood Mackenzie (WM) to share views on the rare earths market.

WM expects neodymium/praseodymium (NdPr) prices to average US$100/kg near-term and highlighted both magnet makers and miners were profitable at these levels, compared to cycle-low prices of US$40/kg which meant even the domestic majors were struggling to stay cash positive.

WM forecasts NdPr demand growth of some 5% in 2026-27, lower than the 10% growth of previous years, on muted domestic China consumer demand (in particular, domestic EV sales) and lower renewable-related demand from US markets.

(UBS is more constructive, especially with regard to EV export sales.)

While WM historically models (opaque) China supply growth to match China demand, the consultant expects 2026 supply growth to lag demand.

WM and UBS agree the rare earths market is becoming increasingly segmented, citing continued Western deals/offtakes with prices separate from Asian metal prices.

While WM sees the (ex-China) light rare earths market as somewhat stable, when considering the near-term capacity additions from incumbents and greenfields alike from an NdPr perspective, the consultant is proportionally more positive on the ex-China heavies thematic for which they see little new supply (and a much more dominant China).

UBS continues to prefer Lynas Rare Earths ((LYC)), for which it has a Buy rating, over Iluka Resources ((ILU)) on Neutral, on a medium-term view, with the former having latent capacity to spare, is further ahead with regards to heavies production, and with potential for further value-chain diversification as Lynas expands downstream into magnets.

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