• ANZ sees iron ore prices hitting US$130/t over the next three months
  • But it’s the latest big bank to predict a chill to below US$100/t as supply rises and property demand fails to boom in China
  • Independent expert deems BHP’s $9.6b OZ bid “fair and reasonable”

ANZ has become the latest big bank to suggest the early 2023 rally in iron ore won’t last, predicting a run to US$130/t will pull back to under US$100/t by year’s end.

It follows similar predictions from Commbank and Westpac, with Australia’s major financial institutions less bullish than traders about the prospects of China’s property sector powering a return to glory for iron ore stocks.

Miners are still enjoying strong profits, but saw a big fall year on year in the February reporting season, with BHP (ASX:BHP), Rio (ASX:RIO) and Fortescue (ASX:FMG) all trimming their dividend and payout ratio as lower iron ore prices coalesced with higher decarbonisation and M & A spend.

The last two days has seen the materials sector, led by the big iron ore miners, rally on signs of healthy Chinese economic growth post-Covid and Lunar New Year.

ANZ’s Daniel Hynes and Soni Kumari say they have raised the bank’s short term target to US$130/t, with Singapore futures fetching US$126.45/t today.

But they see prices pushing back below US$100 as property sector weakness in China dominates the demand story.

“The first concrete sign of an increase in China’s industrial activity emerged this week, with the manufacturing PMI rising to its highest level since 2012,” they said.

“Policy designed to support the property sector boosted sentiment in the steel industry.

“Steel inventories are low, and margins are improving, which should strengthen near-term steel output. On the supply side, weather and operational issues this year have stifled Australian and Brazilian iron ore exports.

“This combination of conditions, however, is likely to be short lived. The support for the property sector is not expected to lead to a boom in new construction. And we expect supply side issues to ease over the year.”

Hynes and Kumari say newly commissioned and ramped up mines like Rio’s Gudai-Darri and FMG’s Iron Bridge, along with improved production out of Brazil should see the iron ore market finally return to surplus after three years of deficits.

While China’s property policies could stave off developer defaults, ANZ don’t see them driving a new boom.

“They are not intended to stimulate investment demand for property, as the government’s ‘common prosperity’ mandate, which views property as for housing not for investment, weighs on market sentiment,” Hynes and Kumari said.

“But the policies should allow the resumption of unfinished residential construction projects, which will bolster demand for raw materials and reduce the risk of a hard landing. However, a sustained pick-up in growth is unlikely while new housing starts and new construction activity remain subdued.”


BHP’s OZ takeover clear major hurdle

BHP has heard the three words it wanted to in its $9.6 billion takeover of OZ Minerals (ASX:OZL), with independent expert Grant Samuel deeming the offer “fair and reasonable”.

It means the company is under no pressure to lift its bid, which at $28.25 per share came in at the lower end of the expert’s valuation of OZ at between $27.37-30.47.

The scheme of arrangement can now be put to OZ shareholders, with a meeting to vote on the BHP offer slated to take place on April 13 online and at Adelaide Airport.

The offer, which came after BHP had a prior $25 per share bid knocked back by OZ’s board, comes in at a 49.3% premium to OZ’s closing share price on August 5 before the initial approach was announced to the market of $18.92 and 59.8% premium to its 30-day VWAP at that point.

OZ’s shares have been elevated since it became apparent BHP was keen on the copper miner, which provides access to bolt on copper and gold mines in South Australia near BHP’s Olympic Dam operations and a new nickel and copper mine at West Musgrave in a remote part of WA.

It is the largest Australian takeover BHP has pursued, eclipsing its $9.2b deal to acquire Western Mining Corporation in 2005, and its largest anywhere since the disastrous acquisition of Petrohawk Energy in the US in 2011.

But it comes at a time that global majors, especially BHP, are pivoting to increase their control over future facing commodities like copper and nickel, expected to be the big winners of a global decarbonisation drive based on technologies more mineral intensive than the fossil fuel sources that have powered the last century of industrialisation.

BHP and Rio Tinto shares lifted today, with the materials sector up 0.46% in early trade, while OZ stock was ho-hum and has understandably barely moved for months since accepting the BHP offer.


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