Pic: Monty Rakusen/Image Source via Getty Images
Mining
One of Australia’s big banks says China is “now well past peak steel”, after revising its forecasts for iron ore down for the next two years.
Westpac senior economist Justin Smirk lowered the bank’s forecasts for iron ore prices for the December quarter from US$100/t to US$84/t, falling to US$80/t (a level it already hit last week) by the end of the year.
Despite a timid supply response to strong margins from Australian and Brazilian miners over the past two years it is expected to fall further to US$70/t by the end of 2023 and US$60/t by the end of 2024 before rebounding back into the mid-80s by 2026.
Westpac had previously, as recently as last month, predicted 62% Fe iron ore prices bottoming out at US$80/t in December 2024, with prices in the $90 range throughout 2023.
Smirk’s comments were presumably compiled before rumours China could reverse its economy strangling Covid lockdown policy, despite official commentary suggesting otherwise.
That sent prices for a massive basket of commodities, including iron ore, surging on Friday, something that has flowed through to a rollicking 3.84% lift for Aussie materials stocks today.
The sector is largely composed of large cap miners like BHP (ASX:BHP), Rio Tinto (ASX:RIO) and Fortescue Metals Group (ASX:FMG).
All are aiming to develop new mines in the Pilbara and increase their production levels over the coming years.
They have historically been shielded because of their extremely low operating costs, but would need to consider how to balance capex for new developments if prices continue to fall, with all three pledging billions on decarbonisation projects over the next 8 years.
Westpac’s Smirk says China’s steel fundamentals have been weakening, with pig iron production softening through October, inventories rising and rebar prices dropping.
“It is also likely that Chinese crude steel production could fall by around 5% compared to September if authorities enforce the target for lower production in 2022,” he said.
“From the supply side, iron ore shipments are flat in the year to date with Australia +1%, Brazil -2% and South Africa +2%. For these reasons we remain cautious for iron ore even though we see the economic fundamentals improving for China.
“Our forecast has iron ore holding around US$80 into early 2023 before weakening to US$70/t by end 2023 due to a gradual lift in iron ore supply from Australia and Brazil and China now well past peak steel.”
Iron ore’s fortunes run counter to those of the coal market, where thermal coal prices are trading for around US$350/t and met coal prices rose strongly across October to over US$293/t, closing the gap on energy coal.
PCI grade coal, normally trading at a discount to premium hark coking coal, is fetching US$306/t.
Smirk says thermal coal, predicted to trade at US$390/t this quarter, will see tight markets remain into the first half of 2023 due to EU switching from Russian supplies and the fact it remains 47% cheaper in the EU than gas.
But better weather and supply conditions in Australia and South Africa could eventually end the bull run.
“We do expect that coal supply will normalise from Australia (with the ending of the third La Nina) and South Africa potentially adding an addition 20-30Mt per year to the seaborne trade,” Smirk said.
“As a result we expect the Newcastle thermal coal benchmark to fall from ~US$380/t currently to ~$150/t by end 2023 and then down to $105/t by 2024.
“It is worth noting that currently thermal coal continues to trade at a material premium to met coal due to limited liquidity with producers entering the market to meet contractual obligations for thermal coal.”
Mincor Resources (ASX:MCR) enjoyed its first AGM today since returning to the very slim ranks of Australian nickel miners this year.
The company plans to produce 8000-10,000t of nickel in concentrate in FY23 and the restart of the historic Kambalda nickel after six years has been viewed positively by the $732 million miner’s shareholders, who voted up a suite of resolutions at today’s meeting.
But it was another note that had investors piling in, with major shareholder Andrew Forrest and his associated Tattarang and Wyloo Metals groups spending ~$37 million to pick up over 27 million shares on market between May 31 and November 3.
It has seen Forrest’s stake in the nickel producer lift from 15% to 18.68% since its last substantial holder notice back in August 2020, a period which has included dilution from capital raisings and the sale on market of ~$1.39m worth of stock between January 13 and February 23 this year.
Mincor shares were up 7% today, with the AGM also paving the way for the start of OZ Minerals (ASX:OZL) executive Gabrielle Iwanow’s run as managing director, slated to begin on November 14.
AIC Mines (ASX:A1M) looks to have secured its prize, consolidating the copper district near Cloncurry that contains its Eloise mine.
AIC has secured the support of Demetallica’s (ASX:DRM) board for a 1 for 1.3 all share offer that marries its Jericho deposit and surrounding Chimera project with the Eloise mine and plant.
The company’s initial bid came before DRM posted a 62% increase in mineral resources at Jericho, 4km from the Eloise plant, to 205,000 tonnes of copper, 129,000 ounces of gold and 744,000 ounces of silver at a total grade of 1.46% Cu.
The bid implementation deed values Demetallica at ~39c per share based on AIC’s pre-offer closing price on September 19, with AIC eying a staged expansion to 20,000tpa copper and 10,000ozpa gold in concentrate over 10 years, a 60% increase in the current Eloise production rate.
DRM shares were up 3.4%, while AIC stock fell 4.7% today.
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Car companies continue to head upstream to prepare themselves for the generational shift from internal combustion engine to electric vehicles, with Arafura Rare Earths (ASX:ARU) the latest ASX-listed developer to ink a supply deal with auto majors.
It is a move that has been seen previously in lithium, nickel and graphite, with OEMs committing to head further up the supply chain to ensure they can access supply of scarce materials key to meeting their EV production targets.
The bulk of the supply chain is currently based in China, a concern to companies located in ore aligned with western powers.
South Korea’s Hyundai and Kia will become the cornerstone customers for Arafura, receiving NdPr oxide or metal from its Nolans project over a seven year term, with annual contract quantities increasing to up to 1500tpa of NdPr oxide or equivalent metal once it hits nameplate capacity in year 4 to 7 of the agreement.
The deal, which included a non-binding heads of agreement for discussing a potential strategic investment by Hyundai in Arafura, represents around 40% of the 85% share of Nolans production available to be secured under long term agreements.
First production from Nolans is expected in 2025, with annual production to ramp to its nameplate of 4400tpa of NdPr in 2027.
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