This is how forecasting is done. Pic: Getty Images
Mining
Monsters of Rock drills deeper into the ASX’s large cap mining stocks with mining scribe Josh Chiat.
Budget papers are hardly the place to go for nuance when it comes to commodity price forecasts, with Treasury’s propensity for bearishness leaning on an exercise in covering ass.
Much was made of a $100 billion drop in forecast mining exports over the next four years, largely due to weak Chinese economic conditions and a falling iron ore price.
At the same time, few serious commercial analysts see iron ore rationally falling to US$60/t by September next year or premium hard coking coal, one of the commodities most exposed to supply shocks, tumbling to US$140/t, as is predicted in a Mid-Year Economic and Financial Outlook that saw the Albanese Labor government castigated by the mining lobby over its policy settings.
Low commodity forecasts are a safety net to try to avoid profligate spending, already an ongoing concern in a three-year election cycle – or more cynically, a great marketing tool for ‘surprise’ surpluses or lower deficits when commodities outperform these low expectations – but they don’t necessarily provide an accurate roadmap for investors.
Indeed, Canberra’s chief forecasters from the Department of Industry, Science and Resources’ office of the chief economist paint a different, albeit still concerning picture today.
Their December update shows resources and energy exports, which hit a record $466.2bn in 2022-23 and $414.85bn in 2023-24 will slide to $372.06bn this financial year and $350.54bn in 2025-26.
That stinks, albeit it’s worth noting much of that is due to gas and thermal coal prices which have come down from abnormally high levels in 2022 when the Russian invasion of Ukraine sent energy prices haywire.
Iron ore is expected to fall from an average US$103/t last financial year to US$83/t this and US$77/t in 2025-26. They’re currently US$100.90/t, and have staged a number of rebounds whenever the US$100 level has been truly tested in 2024.
At the same time, the department’s analysts still think output will rise despite falling prices from 898Mt in 2023-24 to 914Mt this year and 928Mt in 2025-26 as exports drop from $138bn to $96bn over three years.
Westpac similarly thinks oversupplied Chinese steel and iron ore markets will see iron ore prices head lower from here.
But it won’t be as dramatic. They think iron ore averages US$90/t by September 2025 and US$83/t by June 2026, finding support and lifting back to US$88/t by September 2028.
Senior economist Justin Smirk said global iron ore demand has pulled back 1.6% in 2024 including 3.1%, or 42Mt in China. That was against a 1% lift in supply, with Brazil and South Africa outperforming, Ukraine reviving some of its war-torn industry balanced out by a big 11Mt decline in Chinese domestic production.
But perversely, Chinese iron ore imports have been up, with November imports of 101.86Mt up 9% over the five year average. That’s seen port inventories lift substantially above long term levels.
“As Chinese miners are expected to face greater competition from the seaborne trade in 2025 their output is expect to contract further, limiting growth in total supply,” Smirk said. “Then as we move into 2026 volumes are set to rise as we see the start-up, and ramp-up of production from Guinea (Simandou), Brazil, and Australia.
“China iron ore imports lifted 101.86Mt in November with the total year to date up almost 9% versus the average for the last five years.
“This contrasts with China steel production, which is down almost 2% year to date, suggesting that the huge pile of inventories at Chinese ports is set to get even larger as we move into 2025 and the seaborne trade surplus expands.”
The biggest impact could actually be on higher cost Chinese suppliers.
“This should force prices lower and, as a result, high cost producers like China are likely to curtail production further,” Smirk added.
“We remain of the view that iron ore prices should be capped in the US$105–110/t range as we move into 2025, and that prices will eventually start a slide towards US$90/t and lower as we move through the year.”
While the nature of Australia’s economy leads to an almost mesmeric focus on iron ore, there have been plenty of ructions elsewhere in 2024.
Nickel and lithium prices have plodded along at the bottom of the cycle, with oversupply from oversea producers chopping export values from $9.9bn last year for lithium to a forecast $4.9bn this year before an expected rebound to $6.5bn in 2025-26.
Just $1.4bn will be received for nickel sales in 2024-25 after hitting $3.6bn last year.
At the same time alumina prices are expected to average US$545/t this financial year, up from US$363/t after an epic squeeze in bauxite supply – and alumina and aluminium feedstock – with export values to lift from $8.5bn in 2023-24 to $11.5bn this year and $10bn next as prices moderate to US$492/t.
Gold exports will run steadily from $33bn to $35bn over the forecast period, overtaking thermal coal as prices rise from US$2079/oz in Fy24 to US$2552/oz this year and US$2391/oz in FY26.
Uranium and copper prices and production are also expected to rise incrementally, with the value of copper to the Aussie economy forecast to lift from $11bn in Fy24 to $16bn in FY26, the largest percentage gain for any major commodity.
Uranium spot prices are forecast to rise from US$82/lb in 2024 to US$93/lb by FY26.
Canberra’s boffins believe nickel will remain oversupplied throughout the outlook period, keeping a lid on prices, with lithium earnings for FY26 revised down $1.7bn on previous forecasts.
But they see a marginal improvement in both spodumene and chemical prices coming over the outlook period, with 6% Li2O spodumene concentrate, the product shipped by WA mines like Greenbushes, Pilgangoora and Wodgina, expected to lift from an average US$964/t in calendar 2024 to US$1000/t in 2025 and US$1125/t in 2026.
That’s a slow return after prices collapsed from an average US$3730/t across 2023.
Mined spodumene production is still expected to lift from 345,000t LCE in 2022-23 to 418,000t last financial year, 442,000t this year and 493,000t in FY26.
For all the talk of the energy transition, the vast bulk of the capital committed to major projects in Australia remains in the oil and gas space.
Of the 68 projects committed to be implemented by Australian focused companies at a combined investment of $65.1bn, 57.7% of the value is provided by just 13 oil and gas projects.
Critical minerals projects lag by comparison, though taking a further step back around $20bn of these projects are said by the office of the chief economist to be in “advanced stages”.
That’s down from $26bn a year earlier.
All up around 321 major projects have been announced, with 66 worth $36.1bn at the advanced feasibility stage and 21 worth $10.3bn completed in the 12 months to October 31, 2024.
This year’s Major Projects Report shows the total number of projects in the pipeline has lifted from 421 last year to 455 at October 31, with around a quarter in the critical minerals space.
Record gold prices have also seen the number of gold projects in feasibility stages rise substantially from 27 in 2023 to 38 in 2024.
While eight major critical minerals projects took a step forward in 2024, nine regressed with lithium and nickel developments the hardest hit.
“No new advanced feasibility studies or final investment decisions were made for lithium and nickel projects over the period,” the report said.
“Poor market conditions also resulted in pauses in construction for train 3 of the Kemerton refinery and the Pilgangoora Lithium Phosphate Demonstration plant, while plans for train 4 of the Kemerton refinery were cancelled.
“Similarly, falling nickel prices has seen work on IGO’s Cosmos project and BHP’s West Musgrave copper-nickel project suspended. Amongst projects that did progress, Alpha HPA’s First Project (Stage 2) and GEMCO Eastern lease South expansion projects reached FID, while Cadoux’s FYI HPA project published a new advanced feasibility study.
“This year’s report included the completion of several high-value projects, worth $3.8 billion. Three lithium mine projects were completed in 2024: Liontown’s Kathleen Valley mine ($951 million), Covalent’s Mt Holland ($1.25 billion) and the Pilgangoora P680 expansion ($404 million) reached commercial production.
“Lynas’ Kalgoorlie rare earths processing facility and the Thunderbird mineral sands project (a joint venture between Sheffield Resources and Yansteel) were also completed over the period.”
$2.7bn is still committed in three lithium projects with nothing new in the nickel and cobalt pipeline.
Patriot Battery Metals (ASX:PMT) (lihtium) +20.9%
Perenti Global (ASX:PRN)(mining services) +5.8%
IperionX (ASX:IPX) (titanium) +4%
Sayona Mining (ASX:SYA) (lithium) -20.3%
Coronado Global Resources (ASX:CRN) (coal) -20%
Bellevue Gold (ASX:BGL) (gold) -17.9%
MAC Copper (ASX:MAC) (copper) -17.8%
Just three of the 57 companies in the ASX 300 metals and mining index finished in the green in a horror week for Australian resources equities.
An outlook from US Fed chair Jerome Powell for a slower than expected rate cut cycle and lower than hoped for Chinese economic stimulus measures are weighing on ressie plays.
Patriot enjoyed a +20% gain thanks to a C$4.42/sh placement to raise C$69 million at a 65% premium to its 30-day VWAP in a deal that brought global car giant Volkswagen on board as a major strategic partner for its Shaakichiuwaanaan lithium project in Quebec, Canada.
Mining
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