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Bulk Buys: CBA says iron ore is heading lower if China’s property sector remains in the toilet
Mining
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- Commbank thinks iron ore prices will fall to US$100/t this year
- CBA mining expert Vivek Dhar says a contrating Chinese property sector will hurt iron ore and steel demand
- Thermal coal hovers around US$200/t ahead of reporting season, but coking coal is continuing its 2023 comeback
Iron ore bulls have been vindicated so far in 2023, with China’s reemergence from its vicious cycle of Covid lockdowns bringing traders back to the table to send prices beyond US$120/t.
Singapore futures lifted 1.68% yesterday to US$122.40/t.
It is a positive signal for Australia’s biggest miners ahead of their financial results reports, starting tomorrow with Andrew Forrest’s Fortescue Metals Group (ASX:FMG).
Capex and decarbonisation spending could begin for the first time to cut into dividends, but analysts suggest payouts to investors will still be strong.
“The DecQ updates have, in aggregate, resulted in negative revisions to FY23 EPS/FCF estimates and capital management expectations into Feb results and given ongoing supply chain and cost uncertainty, those with upcoming project capex may soften interim dividend payments. Nevertheless, we continue to expect capital management to remain elevated (given strong FCF and balance sheets),” RBC’s Kaan Peker said in a note yesterday.
Will iron ore stay this bullish throughout 2023? Many analysts aren’t so sure of that.
Commbank’s mining and metals guru Vivek Dhar says a boost in infrastructure construction in China, where CBA expects economic growth to lift from a paltry 3% in 2022 to 5.5% in 2023, will not be enough to offset a continued contraction in its belaboured property sector.
“New housing starts is the key indicator to watch for steel demand from China’s property construction sector. New housing starts (measured in floor space) plummeted ~40% in 2022 and is likely to remain in contractionary territory in 2023,” he wrote in a note to clients.
“However, the rate of contraction is likely to ease from 2022 to 2023, likely signalling that the worst is likely over for China’s property‑related steel demand.”
Contraction still expected
The worst being over may help sentiment, but Dhar says total steel demand will still fall.
“Policymakers have looked to ease credit conditions for China’s property developers,” he said.
“China’s 16‑point property rescue package released last year indicates how policymakers have turned more supportive to the property sector.
“It is still anticipated though that steel demand from China’s property construction sector will contract notably again in 2023. And the extent of contraction is expected to be steep enough to bring down China’s total steel demand by 0‑2% in 2023.
“Weaker Chinese steel demand should weigh on China’s steel output and iron ore consumption. We think weaker Chinese iron ore demand, combined with a modest uplift in seaborne iron ore supply will weigh on iron ore prices through 2023.
“We think prices will drift lower to $US100/t in coming months.”
ASX iron ore stocks
Scroll or swipe to reveal table. Click headings to sort.
| CODE | COMPANY | PRICE | 1 WEEK RETURN % | 1 MONTH RETURN % | 6 MONTH RETURN % | 1 YEAR RETURN % | MARKET CAP |
|---|---|---|---|---|---|---|---|
| ACS | Accent Resources NL | 0.025 | 0% | 0% | -40% | -55% | $ 11,650,682.08 |
| ADY | Admiralty Resources. | 0.01 | 0% | 43% | 11% | -52% | $ 11,732,212.38 |
| AKO | Akora Resources | 0.165 | 3% | -11% | 0% | -54% | $ 11,911,384.65 |
| BCK | Brockman Mining Ltd | 0.022 | -15% | 0% | -21% | -64% | $ 241,286,035.41 |
| BHP | BHP Group Limited | 47.72 | -1% | -4% | 23% | 11% | $ 242,500,830,015.72 |
| CIA | Champion Iron Ltd | 7.2 | -1% | -6% | 44% | 1% | $ 3,677,243,125.86 |
| CZR | CZR Resources Ltd | 0.215 | -3% | -9% | -14% | 62% | $ 49,974,713.52 |
| DRE | Dreadnought Resources Ltd | 0.094 | -10% | -10% | 1% | 135% | $ 309,610,452.68 |
| EFE | Eastern Resources | 0.018 | 6% | -5% | -47% | -67% | $ 22,355,036.30 |
| CUF | Cufe Ltd | 0.018 | -8% | 13% | -14% | -58% | $ 16,423,910.21 |
| FEX | Fenix Resources Ltd | 0.265 | -2% | 0% | -16% | 6% | $ 154,802,908.80 |
| FMG | Fortescue Metals Grp | 22.18 | 1% | -3% | 17% | -3% | $ 68,168,283,284.52 |
| FMS | Flinders Mines Ltd | 0.465 | -1% | 4% | -2% | -10% | $ 78,514,588.31 |
| GEN | Genmin | 0.2 | 0% | 0% | -20% | 0% | $ 64,687,570.00 |
| GRR | Grange Resources. | 1.05 | 0% | 12% | -13% | 26% | $ 1,197,845,552.43 |
| GWR | GWR Group Ltd | 0.057 | -7% | -8% | -39% | -65% | $ 18,630,565.99 |
| HAV | Havilah Resources | 0.36 | 3% | 0% | 7% | 100% | $ 110,823,723.50 |
| HAW | Hawthorn Resources | 0.095 | -1% | -21% | 8% | 0% | $ 31,826,483.24 |
| HIO | Hawsons Iron Ltd | 0.069 | -9% | -27% | -78% | -64% | $ 63,425,883.22 |
| IRD | Iron Road Ltd | 0.105 | 0% | -9% | -28% | -45% | $ 84,360,817.91 |
| JNO | Juno | 0.1 | 0% | 5% | -20% | -13% | $ 14,922,380.11 |
| LCY | Legacy Iron Ore | 0.016 | -6% | -6% | -18% | -11% | $ 102,509,219.18 |
| MAG | Magmatic Resrce Ltd | 0.095 | -14% | 0% | 9% | -3% | $ 28,735,123.01 |
| MDX | Mindax Limited | 0.059 | 0% | 0% | 0% | 40% | $ 115,533,663.12 |
| MGT | Magnetite Mines | 0.74 | 70% | 51% | -49% | -57% | $ 58,016,229.89 |
| MGU | Magnum Mining & Exp | 0.022 | -8% | -15% | -51% | -70% | $ 16,212,204.79 |
| MGX | Mount Gibson Iron | 0.58 | 0% | -6% | 14% | 5% | $ 716,507,406.47 |
| MIN | Mineral Resources. | 87.03 | -2% | -2% | 47% | 70% | $ 17,258,756,826.50 |
| MIO | Macarthur Minerals | 0.165 | 10% | 6% | -18% | -57% | $ 27,332,825.52 |
| PFE | Panteraminerals | 0.115 | -12% | -23% | -18% | -43% | $ 6,180,134.40 |
| PLG | Pearlgullironlimited | 0.043 | -17% | 54% | 26% | -24% | $ 6,569,482.00 |
| RHI | Red Hill Minerals | 4.72 | 0% | 10% | 38% | 38% | $ 299,992,300.30 |
| RIO | Rio Tinto Limited | 121.5 | -1% | -1% | 27% | 0% | $ 45,407,167,296.48 |
| RLC | Reedy Lagoon Corp. | 0.009 | -10% | -18% | -47% | -70% | $ 5,100,476.41 |
| CTN | Catalina Resources | 0.009 | -18% | 0% | -10% | -57% | $ 12,384,868.92 |
| SRK | Strike Resources | 0.084 | -7% | -5% | -38% | -33% | $ 23,835,000.00 |
| SRN | Surefire Rescs NL | 0.013 | -7% | -13% | -24% | -19% | $ 22,929,770.42 |
| TI1 | Tombador Iron | 0.024 | -4% | -14% | -20% | -37% | $ 51,287,576.95 |
| TLM | Talisman Mining | 0.165 | 3% | -3% | 5% | -8% | $ 30,977,017.01 |
| VMS | Venture Minerals | 0.025 | 0% | -11% | -22% | -38% | $ 42,400,982.21 |
| EQN | Equinoxresources | 0.2 | 3% | 60% | 18% | -9% | $ 9,000,000.20 |
| AMD | Arrow Minerals | 0.006 | 20% | 20% | 33% | 9% | $ 15,202,590.56 |
Thermal coal wobbles as miners enter reporting season
Also expected to deliver strong dividends to shareholders this reporting season, coal miners have had a topsy turvy start to the week.
They were Monday’s big winners, with thermal coal futures running back above US$200/t after a dramatic fall from levels of around US$400/t at the start of 2023.
The ICE February contract dropped 2.26% to US$221/t yesterday, with the March contract down US$7.25 to US$198.75/t.
It’s been a different case this year for metallurgical coal, with steelmaking coal recapturing its traditional big premium to energy coal.
Coking coal futures, stirred in part by news Chinese customers were buying Australian cargoes for the first time in over two years and hopes of a recovery in the steel market after a big contraction last year, were up 0.4% Monday to US$374/t.
ASX coal stocks
Scroll or swipe to reveal table. Click headings to sort.
| CODE | COMPANY | PRICE | 1 WEEK RETURN % | 1 MONTH RETURN % | 6 MONTH RETURN % | 1 YEAR RETURN % | MARKET CAP |
|---|---|---|---|---|---|---|---|
| NAE | New Age Exploration | 0.007 | -7% | -22% | -13% | -56% | $ 10,051,292.37 |
| CKA | Cokal Ltd | 0.19 | -3% | -5% | -12% | 12% | $ 174,168,061.30 |
| NCZ | New Century Resource | 0.85 | -3% | -2% | -55% | -57% | $ 111,905,184.30 |
| BCB | Bowen Coal Limited | 0.28 | -5% | -8% | -8% | 22% | $ 504,585,632.65 |
| SVG | Savannah Goldfields | 0.185 | -8% | 3% | -8% | -31% | $ 34,936,961.03 |
| GRX | Greenx Metals Ltd | 0.71 | -3% | -10% | 154% | 246% | $ 182,606,734.08 |
| AKM | Aspire Mining Ltd | 0.057 | -12% | -19% | -30% | -33% | $ 30,965,856.09 |
| AVM | Advance Metals Ltd | 0.01 | 0% | -23% | 0% | -41% | $ 5,800,440.69 |
| AHQ | Allegiance Coal Ltd | 0.015 | -32% | -64% | -86% | -96% | $ 17,083,230.79 |
| YAL | Yancoal Aust Ltd | 5.64 | -9% | -9% | 8% | 70% | $ 7,473,687,213.42 |
| NHC | New Hope Corporation | 5.41 | -12% | -13% | 23% | 109% | $ 4,764,255,175.80 |
| TIG | Tigers Realm Coal | 0.013 | -19% | -28% | -28% | -24% | $ 169,867,130.78 |
| SMR | Stanmore Resources | 3.57 | -3% | 9% | 59% | 225% | $ 3,217,932,661.86 |
| WHC | Whitehaven Coal | 7.91 | -8% | -10% | 19% | 150% | $ 7,051,769,636.73 |
| BRL | Bathurst Res Ltd. | 0.94 | 6% | 12% | 4% | 21% | $ 174,137,399.80 |
| CRN | Coronado Global Res | 2.11 | -2% | 4% | 32% | 66% | $ 3,386,436,534.60 |
| JAL | Jameson Resources | 0.081 | -10% | -10% | -5% | 8% | $ 31,712,399.10 |
| TER | Terracom Ltd | 0.76 | -11% | -22% | -7% | 176% | $ 628,758,494.48 |
| ATU | Atrum Coal Ltd | 0.005 | -17% | -29% | -33% | -76% | $ 8,350,195.03 |
| MCM | Mc Mining Ltd | 0.235 | -8% | -43% | 43% | 225% | $ 89,478,357.53 |
| DBI | Dalrymple Bay | 2.47 | -2% | 0% | 12% | 23% | $ 1,249,319,400.84 |
| JAL | Jameson Resources | 0.081 | -10% | -10% | -5% | 8% | $ 31,712,399.10 |
| TER | Terracom Ltd | 0.76 | -11% | -22% | -7% | 176% | $ 628,758,494.48 |
| ATU | Atrum Coal Ltd | 0.005 | -17% | -29% | -33% | -76% | $ 8,350,195.03 |
| MCM | Mc Mining Ltd | 0.235 | -8% | -43% | 43% | 225% | $ 89,478,357.53 |
