Monsters of Rock: Record prices for coal as gold shines, iron ore hits US$130
It’s not fashionable to root for China these days, but its plans to stimulate its waning economic growth will get plenty of support from Australia’s iron ore miners.
Easing moves in the People’s Republic led to major gains for iron ore, which moved up 2.8% to US$131.23/t after Tuesday’s 5% run in Dalian futures.
Northern Star (ASX:NST) was the large cap leader with an 11.2% gain after reporting its quarterly results, producing 392,655oz at $1631/oz.
The question for iron ore remains whether Chinese easing translates into infrastructure builds and steel demand.
“It’s not just the additional monetary policy in China support that has helped iron ore prices higher in the last few weeks. China’s daily steel output rose sharply last month as a number of steel mills met their steel output cuts for 2021 by November,” Commbank analyst Vivek Dhar said.
“The fact that steel margins rose from November to December also suggests that steel demand has held up reasonably well – potentially indicating that steel demand from China’s infrastructure sector may be offsetting demand weakness from China’s property sector.”
The key date remains the Winter Olympics next month. Dhar said a MySteel survey showed steel capacity use will drop from 78% to 63% in Tangshan from January 30 until after the Beijing Olympics on February 20. But supply issues, largely out of weather stricken Brazil, could prop up prices.
“The risk that iron ore prices remain stronger than expected in coming weeks will likely depend on the supply side. Heavy rains in Brazil have adversely impacted Brazilian iron ore production already (21% of the seaborne market),” Dhar said.
“However, Australian supply (53% of seaborne supply) may face disruptions as Western Australia looks to re‑open its borders on February 5.”
China’s strong economic support signals and supply crunches saw LME nickel extend decade plus highs above US$23,000/t, with zinc, copper and aluminium all higher as well.
$10 billion capped Nova mine owner IGO (ASX:IGO) was up ~4% to a new all time high of $13.35, while Andrew Forrest-backed Mincor (ASX:MCR) (+4.86%) and Poseidon Nickel (ASX:POS) (+14.29%) also posted big gains.
Coronado Global Resources (ASX:CRN) is expecting to see record prices for its metallurgical coal in the March quarter with its head honchos predicting the conditions that drove prices to unforeseen levels will continue for some time to come.
Australian and US coal miner Coronado has struggled since listing to much fanfare in a $774 million IPO in 2018.
But it saw average realised prices rise 48.8% quarter on quarter to US$214/t in the December quarter.
Brighter times are likely ahead given Coronado’s Australian production is generally sold on a quarterly lag. Average PLV hard coking coal prices from Australia increased 40% QoQ to US$369/t in the fourth quarter, with low vol hard coking coal from the US increasing 34% to US$375/t.
Top quality Australian coking coal hit a stonking US$431.11/t after BHP lowered guidance for FY22 from its Australian operations on Wednesday.
“Met Coal prices for shipments from both our U.S. and Australian operations reached record levels during the quarter and remain elevated due to a continuation of strong global demand and tight supply,” Coronado said.
Record prices for coking coal, used in steelmaking, and thermal coal have put paid to suggestions action on climate change will kill demand for the commodity at least in the short term.
Unlike other Aussie listed coal miners, Coronado has access to the Chinese market via its US exports, which is expects will remain steady as China retains its unofficial embargo on Australian coal amid a trade dispute stretching back over 18 months.
The stronger financial metrics saw Coronado hit a net cash level of $123 million as of December 31, a reversal on its net debt of $282 million at the end of 2020.
While the company sees prices falling from record levels by the end of the year, it expects stronger than average pricing to remain through 2022 and certainly through the first half of the year.
Coronado CFO Gerhard Ziems said tight supply and strong demand from Asian steelmakers remained features of the current market.
“China could provide met coal demand upside after the Winter Olympics … that’s what the market believes in and that’s kind of the paradigm we have seen coming out of China on a regular basis,” he said on an earnings call.
“And I think also the European energy crisis will keep thermal coal prices elevated. Not that we are in thermal coal, we are not. But of course, the thermal coal price is always a floor for met coal prices.
“The second one is supply constraints and disruption will remain I guess a feature this year in the met coal markets, at least in the first half.
“Seaborne supply over quarter one out of Australia, Canada, the US, Mongolia, Russia, will be lower than 2019 and 2020 despite higher seaborne prices and the availability of additional production capacity, you’ve seen Australia’s La Nina impacts on prices and actually on production as well.”
Coronado celebrated record quarterly revenue of $774.5 million, a 35% increase on the September quarter, leading 2021 revenue 46.9% higher on 2020 levels to $2.1 billion.
That came despite sales volumes falling 6.1% for the quarter to 4.3Mt after the temporary closure of its Curragh mine in Queensland following the death of dragline operator Clark Peadon and wet weather on Australia’s east coast.
Sales volumes for 2021 were down 2.2% year on year to 17.8Mt.
Sandfire Resources (ASX:SFR) says supply chain issues and inflation in diesel costs have lifted cash costs at its DeGrussa mine.
But its performance remains steady as it enters the final nine months of operations at the WA copper-gold mine which turned the company from a junior explorer into one of the largest pure play copper miners on the ASX.
It is expected to take the next step in its evolution over the next fortnight when it is handed the keys to the 100,000tpa MATSA complex in Spain, a US$1.865 billion ($2.6b) paid for with equity, debt and the cash generated by its mainstay DeGrussa mine.
Sandfire delivered 18,675t of copper in the December quarter and 34,621 for the half-year as well as 8739oz of gold (16,254oz for the half) at cash costs of US$1.07/lb.
The copper producer increased cost guidance by US$0.10 to US$1.10-1.20/lb but has maintained FY22 guidance of 64-68,000t copper and 30-34,000oz gold.
The company is also deep into the build process of the first phase of its Motheo copper mine in Botswana, due to open in 2023 and is progressing a pre-feasibility study at the Lowry deposit at its 85% owned Black Butte project in Montana, USA, where it is facing legal challenges from local environmental groups.
Speaking to analysts after the results were released, Sandfire boss Karl Simich said the copper market was looking as positive as he had seen.
“All of this is occurring at a particularly exciting time in a macro environment for the metals that we’re exploring for and developing and producing,” he said.
“The structural bull market for base metals appears to be rapidly gaining momentum, with deficits now projected across all refined metals and several major investment banks recently upgrading their price forecasts amid tightening supply and recent concerns around the impact of the global energy crisis.
“Importantly many analysts are suggesting the broader inflationary environment means it is unlikely base metals will be impacted by rising rates in the US this year.
“This is simply a function of the growing realisation of the critical nature of these minerals to the global economy, the decarbonisation push and increasingly supply side shortages and challenges.”
Sandfire shares were up 2.5% at the close.