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Bulk Buys: Falling met coal prices throw a line to iron ore miners
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- Falling met coal prices have helped stabilise steel mills, providing solace for iron ore miners who have seen prices fall
- Chinese property data remains a concern for iron ore: NAB
- Genmin submits mining permit application ahead of FID for Baniaka iron ore mine in Gabon
Iron ore and coking coal have their own idiosyncrasies, but also a sense of simpatico, given each derives its demand from the same source — steel consumption.
But they share a complex and uneven relationship.
In the hot run that signified iron ore’s return to form amid China’s reopening from Covid earlier this year, iron ore and coking coal both caught a bid, the latter in part because of China’s staggered cancellation of its policy of barring Aussie coal cargoes.
At the same time as flagging demand from the northern hemisphere caused thermal coal prices to halve, metallurgical coal prices returned to their highest point in nine months, reversing a precipitous fall that saw them drop into a rare discount position relative to lower quality energy coal for 243 days.
But the reopening blitz that powered premium hard coking coal to over US$350/t earlier this year has subsided.
And while 62% Fe iron ore prices have slid from over US$130/t to US$99.05/t on the Singapore futures market yesterday, the fall in met coal prices amid a tough property market in China and concomitantly pale steel demand has been more significant.
PHCC was paying US$235/t yesterday.
While iron ore prices have struggled this month as a wave of bang average Chinese property data has flown through the door — ANZ last week dropped its short term target to US$95/t — that could provide some support to steel mills and additionally iron ore prices.
Iron ore prices range bound: MySteel
MySteel says an 800-1000RMB fall in coking coal prices has helped ameliorate margin pressures at steel mills.
The Chinese based industry monitor is not expecting large fluctuations in iron ore prices, with falling coke and coal prices giving a boost to steel prices and taming the need for large scale production cuts.
(These are expected through the second half of the year however. The first quarter’s China-wide output of 261Mt came in at a faster pace than NDRC directives that production be no higher than last year’s 1.013Bt).
“Iron ore prices are likely to be range-bound when the average daily hot metal output is expected to remain at 2.4Mt upon WoW profit growth of 9.52% in steel mills while they are still adopting on-demand procurement and a low-inventory strategy,” MySteel analysts said.
“Met coal prices are expected to be stable due to recovered demand from low-inventory coke plants and profitable steel mills after an 800-1000(RMB, US$113-142) coal price drop since mid-March.
“Spot coke prices may remain flat in line with coal prices and it is not ruled out that an upward adjustment cycle may be initiated in the later period.
“Steel scrap prices are anticipated to fluctuate when BF (blast furnace) steel mills tend to reduce scrap consumption while the capacity utilisation rate in EAF steel mills increased by 0.74% WoW.”
While that is somewhat positive for iron ore in the short-term, suggesting ANZ’s US$95/t forecast should be a floor rather than a launching pad for a further drop, economists say the recent property data out of China was not a good read.
While home sales were up 11.8% for the first four months of 2023, that followed a 32% fall at the same time last year.
Volume of sales rose just 2.7% YoY, while using levels in price and square metre terms, sales actually contracted 2.2% YoY with April down 9.5% YoY despite Covid lockdowns in Shanghai 12 months earlier, NAB senior economic Gerard Burg said.
“Although property sales data appear to be stabilising at a considerably lower level than the previous peaks, new
construction activity remains relatively weak,” he said in a note.
“Property developers may prove cautious – particularly given the collapses of several firms in recent years – waiting for a clear turnaround in sales before committing to new projects.
“From an Australian perspective, this would be a negative trend, as residential construction is a key consumer of steel, an industry fed by Australian iron ore exports.”
Genmin targeting 2024 production at Baniaka
Iron ore miners have moved at an increasing pace in Africa in recent times, with Rio Tinto (ASX:RIO) inching towards something resembling an investment decision for its share of the massive Simandou development in Guinea and Fortescue Metals Group (ASX:FMG) pledging to export 2Mt of iron ore from a starter pit at its Belinga project in Gabon by the end of 2023.
Also in Gabon, junior Genmin (ASX:GEN) says it has applied for a large scale mining permit for an initial term of 20 years to support a large-scale operation at its Baniaka deposit.
The company says it has submitted a mining permit application to the Gabonese minister of mines and geology inclusive of a supporting feasibility study.
That will be subject to a social and environmental impact assessment, which has been submitted to the Director General for the Environment and the Protection of Nature.
Genmin says it is through the public exposure phase with no material issues identified and is now subject to final assessment, with approval expected at the end of the June quarter.
It has secured US$2m in working capital from major shareholder Tembo Capital to keep its operations rolling while it finalises its plans for opening a starter operation.
“Our focus during the first part of 2023 has remained steadfast on targeting production at Baniaka in the second half of 2024,” Genmin MD Joe Ariti said.
“Not only have we signed long-term agreements for the provision of clean, renewable electricity, and rail & port services, we have made solid progress on procuring a large-scale mining permit, with the most challenging piece related to the social and environmental impact assessment largely behind us”.
“In addition, the company has been prudent and responsible managing its capital structure in not raising working capital at these artificially low equity prices by putting in place an unsecured, non-dilutive US$2 million loan financing, with its supportive, largest shareholder Tembo Capital.”
A PFS last year put a US$200 million capex bill on developing a 5Mtpa operation with an initial mine life of 10 years at a cash cost of US$59/dmt, using a DMS processing method to upgrade its low grade iron ore resource to high grade lump, fines and pellet feed.
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 | 0.01 | 0% | 43% | -60% | -83% | $ 4,731,272.83 |
| ADY | Admiralty Resources. | 0.006 | 0% | 0% | -25% | -57% | $ 7,821,474.92 |
| AKO | Akora Resources | 0.17 | 13% | 6% | 0% | -33% | $ 11,550,433.60 |
| BCK | Brockman Mining Ltd | 0.032 | -9% | 7% | 19% | -24% | $ 296,967,428.19 |
| BHP | BHP Group Limited | 43.8 | -1% | -3% | 0% | 3% | $ 223,909,268,575.20 |
| CIA | Champion Iron Ltd | 6.23 | -1% | -10% | 3% | -19% | $ 3,284,176,350.10 |
| CZR | CZR Resources Ltd | 0.165 | -8% | -8% | -35% | -38% | $ 42,432,236.28 |
| DRE | Dreadnought Resources Ltd | 0.06 | 13% | -10% | -36% | 40% | $ 208,701,877.86 |
| EFE | Eastern Resources | 0.011 | 0% | -15% | -73% | -71% | $ 14,282,384.30 |
| CUF | Cufe Ltd | 0.012 | 0% | -20% | -20% | -57% | $ 11,593,348.38 |
| FEX | Fenix Resources Ltd | 0.24 | 0% | -6% | 0% | -20% | $ 137,278,051.20 |
| FMG | Fortescue Metals Grp | 20.45 | 1% | -5% | 7% | -1% | $ 63,303,518,714.08 |
| FMS | Flinders Mines Ltd | 0.46 | 5% | 14% | -12% | 8% | $ 77,670,345.42 |
| GEN | Genmin | 0.15 | -6% | -6% | -29% | -25% | $ 72,205,317.44 |
| GRR | Grange Resources. | 0.545 | 2% | -14% | -31% | -66% | $ 648,109,670.88 |
| GWR | GWR Group Ltd | 0.068 | -7% | -16% | 6% | -46% | $ 22,485,165.85 |
| HAV | Havilah Resources | 0.25 | -12% | -7% | -24% | -6% | $ 88,658,978.80 |
| HAW | Hawthorn Resources | 0.07 | 0% | -18% | -25% | -39% | $ 25,126,170.98 |
| HIO | Hawsons Iron Ltd | 0.045 | 0% | -15% | -59% | -93% | $ 42,277,268.71 |
| IRD | Iron Road Ltd | 0.09 | -2% | -14% | -33% | -49% | $ 72,620,232.48 |
| JNO | Juno | 0.072 | 7% | -22% | -21% | -37% | $ 9,767,376.07 |
| LCY | Legacy Iron Ore | 0.014 | -7% | -22% | -22% | -42% | $ 89,695,566.79 |
| MAG | Magmatic Resrce Ltd | 0.12 | 4% | 9% | 28% | 82% | $ 42,796,991.72 |
| MDX | Mindax Limited | 0.087 | -17% | -64% | 47% | 47% | $ 196,373,642.88 |
| MGT | Magnetite Mines | 0.45 | -10% | -15% | -47% | -64% | $ 34,885,576.14 |
| MGU | Magnum Mining & Exp | 0.025 | 14% | 32% | 0% | -58% | $ 17,260,891.85 |
| MGX | Mount Gibson Iron | 0.42 | -1% | -18% | -2% | -40% | $ 503,984,023.20 |
| MIN | Mineral Resources. | 74.03 | 1% | -6% | -15% | 24% | $ 14,487,352,715.80 |
| MIO | Macarthur Minerals | 0.15 | -6% | -3% | 15% | -58% | $ 25,676,290.64 |
| PFE | Panteraminerals | 0.08 | 0% | 0% | -36% | -43% | $ 4,120,089.60 |
| PLG | Pearlgullironlimited | 0.03 | 0% | 0% | 71% | -25% | $ 4,692,487.14 |
| RHI | Red Hill Minerals | 4.45 | -6% | 1% | 6% | 23% | $ 299,992,300.30 |
| RIO | Rio Tinto Limited | 109.38 | 1% | -7% | 4% | 0% | $ 40,551,659,217.36 |
| RLC | Reedy Lagoon Corp. | 0.006 | 0% | 0% | -50% | -79% | $ 3,400,317.61 |
| CTN | Catalina Resources | 0.004 | 0% | -11% | -56% | -60% | $ 4,953,947.57 |
| SRK | Strike Resources | 0.075 | -3% | 23% | -22% | -59% | $ 19,578,750.00 |
| SRN | Surefire Rescs NL | 0.019 | 0% | -21% | 58% | -44% | $ 28,464,542.59 |
| TI1 | Tombador Iron | 0.021 | 0% | -13% | -7% | -38% | $ 44,876,629.83 |
| TLM | Talisman Mining | 0.2 | 11% | 38% | 48% | 43% | $ 36,609,201.92 |
| VMS | Venture Minerals | 0.02 | 25% | -13% | -23% | -53% | $ 35,389,151.84 |
| EQN | Equinoxresources | 0.14 | 22% | -3% | 8% | -26% | $ 6,300,000.14 |
| AMD | Arrow Minerals | 0.0045 | 13% | -10% | 0% | 50% | $ 13,606,942.93 |
Australian coal makes triumphant return to Beijing
If anyone doubted Australian coal miners’ willingness to return to the Chinese market, it hasn’t played out that way since the trade reopened earlier this year for the first time since October 2020.
Lower demand in the northern hemisphere and Europe has seen miners resume coal trade with what was once the Aussie export market’s biggest customer in quick fashion.
According to Bloomberg, Australian exports of coal to China surged 75% on the month to 3.89Mt in April, gabbing a 10% share of the Chinese import market.
It is the largest figure since late 2020 aside from the clearance of stocks stranded at port for over a year in November 2021.
Australian coal miners have the advantage of supplying a higher grade fuel than domestic Chinese producers, leading to better emissions outcomes for end users.
New Hope Corp (ASX:NHC) this week reported the return of its trade with China, with the narrowing of the gap between the 6000kcal Newcastle thermal coal price and the 5500kcal price encouraging it to enter the market to supply lower grade fuel to Chinese power plants.
“With import restrictions on Australian coal into China being lifted and the spread between 6000 and 5500 kcal/kg NAR products narrowing, we have refreshed our relationships into the Chinese market and completed our first sales which will be delivered in the next quarter,” NHC told shareholders in its April quarterly report.
“The robust demand from China of lower energy product has provided an outlet for a portion of our coal over the low season.
“Imports in key markets are expected to increase in the coming months, with continued tight global supply expected to provide support to pricing for higher CV coal.”
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 | 0.005 | 0% | 0% | -38% | -50% | $ 7,179,494.55 |
| CKA | Cokal Ltd | 0.14 | 4% | -13% | -26% | -7% | $ 145,658,112.30 |
| BCB | Bowen Coal Limited | 0.215 | 0% | -12% | -16% | -39% | $ 386,792,322.63 |
| SVG | Savannah Goldfields | 0.145 | -3% | -12% | -24% | -28% | $ 27,418,781.32 |
| GRX | Greenx Metals Ltd | 0.78 | 0% | 3% | 97% | 311% | $ 210,124,434.62 |
| AKM | Aspire Mining Ltd | 0.053 | 0% | -10% | -35% | -40% | $ 26,904,760.21 |
| AVM | Advance Metals Ltd | 0.008 | 0% | -20% | -33% | -27% | $ 4,656,352.55 |
| AHQ | Allegiance Coal Ltd | 0.013 | 0% | 0% | -75% | -97% | $ 13,063,647.08 |
| YAL | Yancoal Aust Ltd | 5.16 | -4% | -9% | -5% | -11% | $ 6,879,489,466.77 |
| NHC | New Hope Corporation | 5.33 | 5% | 0% | -10% | 35% | $ 4,543,687,806.55 |
| TIG | Tigers Realm Coal | 0.007 | 17% | -30% | -46% | -61% | $ 91,466,916.58 |
| SMR | Stanmore Resources | 2.76 | -7% | -16% | 6% | 0% | $ 2,523,896,575.20 |
| WHC | Whitehaven Coal | 6.89 | 1% | -7% | -28% | 34% | $ 5,965,103,159.97 |
| BRL | Bathurst Res Ltd. | 0.99 | 1% | -4% | 16% | -27% | $ 192,316,578.90 |
| CRN | Coronado Global Res | 1.44 | -5% | -14% | -28% | -23% | $ 2,430,857,908.50 |
| JAL | Jameson Resources | 0.075 | 0% | -5% | -32% | 1% | $ 29,363,332.50 |
| TER | Terracom Ltd | 0.63 | 2% | 4% | -32% | -14% | $ 496,599,065.70 |
| ATU | Atrum Coal Ltd | 0.005 | 0% | 0% | -29% | -50% | $ 6,958,495.86 |
| MCM | Mc Mining Ltd | 0.17 | -8% | -19% | -31% | 65% | $ 67,943,084.34 |
| DBI | Dalrymple Bay | 2.61 | 4% | -3% | 4% | 25% | $ 1,259,234,634.18 |
| AQC | Auspaccoal Ltd | 0.175 | 0% | 21% | -20% | 13% | $ 60,779,416.78 |
