Goldman Sachs tips 2025 surplus for iron ore as Chinese infrastructure and property market pull steel demand in opposite directions
Thinktank warns on met coal costs if market heads into decline
But miners remain bullish there is a long runway for coal of the steelmaking variety
Goldman Sachs says iron ore demand will plateau over the next two years, with seaborne iron ore demand to lift barely in 2024 from 1.567Bt last year to 1.573Bt.
That will match supply exactly, leading the market to swing from a 17Mt deficit in 2023 to near perfect balance in 2024, with prices forecast to average US$110/t.
By 2025 seaborne iron ore demand will fall to 1.56Bt while seaborne supply will rise to a five-year high of 1.594Bt, leading to a 34Mt surplus, something that will be foreshadowed on GS’ numbers by a 44Mt surplus in the fourth quarter.
That comes with global crude steel production expected to lift only slightly from 1.856Bt in 2023 to 1.865Bt in 2024, below the 2021 record of 1.926Bt, and Chinese crude steel production expected by GS to fall below 1Bt for the first time since 2019.
So far this year there has been a push and pull when it comes to Chinese steel production, the major demand centre and price setting factor for iron ore.
Chinese auto production has been a positive, running well above the five-year median with 2.5m vehicles rolled off the lot in March.
But property stats have been woeful.
As of March 21, property transaction volumes in China had dropped a startling 49.4% YoY. Infrastructure investment has risen solidly. But Government bond issuances are falling far behind 2023 levels at just 570bn Yuan so far this year.
It jags with suggestions China wants to avoid ‘bazooka-style’ stimulus measures to hit ambitious economic growth targets.
GS expects rebar prices to fall across 2024 from an average of RMB3927/t in the March quarter to RMB$3640/t in the December term, with Chinese steel mills sitting on around five weeks of inventory as port stockpiles have risen in 2024.
ASX iron ore stocks
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CODE COMPANY PRICE WEEK RETURN % MONTH RETURN % 6 MONTH RETURN % YEAR RETURN % MARKET CAP ACS Accent Resources NL 0.007 0% 0% -13% -30% $ 3,311,890.98 ADY Admiralty Resources. 0.012 100% 100% 140% 100% $ 13,035,791.52 AKO Akora Resources 0.155 3% -2% 8% 4% $ 15,048,421.95 BCK Brockman Mining Ltd 0.02 -23% -17% -31% -33% $ 222,725,571.14 BHP BHP Group Limited 43.42 1% -2% -4% -1% $ 216,807,942,426.75 CIA Champion Iron Ltd 7.21 0% 9% -6% 14% $ 3,621,317,869.74 CZR CZR Resources Ltd 0.3 15% 7% 62% 82% $ 69,541,720.57 DRE Dreadnought Resources Ltd 0.018 0% -5% -45% -70% $ 63,235,313.28 EFE Eastern Resources 0.007 0% 0% 0% -36% $ 8,693,625.23 CUF Cufe Ltd 0.018 29% 80% 64% 38% $ 19,483,910.21 FEX Fenix Resources Ltd 0.32 12% 21% 33% 36% $ 211,858,465.60 FMG Fortescue Ltd 26.78 4% 8% 15% 32% $ 81,038,356,641.76 RHK Red Hawk Mining Ltd 0.86 16% 26% 40% 84% $ 171,837,871.94 GEN Genmin 0.17 72% 87% 6% 20% $ 102,784,415.40 GRR Grange Resources. 0.43 5% -3% -8% -28% $ 486,082,253.16 GWR GWR Group Ltd 0.105 -5% 0% 36% 36% $ 33,727,748.78 HAV Havilah Resources 0.2 -13% -2% -17% -23% $ 66,494,234.10 HAW Hawthorn Resources 0.07 -11% -13% -30% -7% $ 23,786,108.52 HIO Hawsons Iron Ltd 0.032 -20% -6% -38% -37% $ 31,315,922.46 IRD Iron Road Ltd 0.076 4% 9% -4% -20% $ 66,085,118.24 JNO Juno 0.059 -5% 4% -26% -30% $ 9,643,098.78 LCY Legacy Iron Ore 0.016 -6% 7% -6% 0% $ 131,130,320.45 MAG Magmatic Resrce Ltd 0.105 0% -9% 81% -19% $ 41,980,284.39 MDX Mindax Limited 0.034 0% -13% -32% -78% $ 69,548,998.52 MGT Magnetite Mines 0.29 5% 0% -5% -48% $ 31,499,048.00 MGU Magnum Mining & Exp 0.014 8% -13% -48% -26% $ 12,140,421.05 MGX Mount Gibson Iron 0.445 -2% -2% -16% 0% $ 534,548,842.52 MIN Mineral Resources. 77.72 9% 11% 28% 10% $ 15,088,046,435.00 MIO Macarthur Minerals 0.076 1% -11% -51% -48% $ 13,076,695.89 PFE Panteraminerals 0.038 -3% -5% -37% -55% $ 10,190,330.04 PLG Pearlgullironlimited 0.024 -8% -8% -4% -27% $ 4,909,002.96 RHI Red Hill Minerals 6.25 0% 10% 39% 39% $ 414,732,871.30 RIO Rio Tinto Limited 131.71 1% 9% 8% 20% $ 48,139,318,631.52 RLC Reedy Lagoon Corp. 0.004 33% 0% 0% -31% $ 2,478,162.93 CTN Catalina Resources 0.003 0% 0% -14% -40% $ 3,715,460.68 SRK Strike Resources 0.05 14% 0% -7% -15% $ 14,471,250.00 SRN Surefire Rescs NL 0.01 -9% 0% -17% -41% $ 19,863,078.13 TI1 Tombador Iron 0.014 0% 0% 0% -33% $ 30,218,753.22 TLM Talisman Mining 0.28 -5% 10% 87% 81% $ 50,846,494.23 VMS Venture Minerals 0.019 -5% -14% 111% 6% $ 47,600,273.74 EQN Equinoxresources 0.21 -2% -5% 31% 62% $ 21,246,750.63 AMD Arrow Minerals 0.004 0% -20% 100% 0% $ 45,627,142.93 CTM Centaurus Metals Ltd 0.42 0% 31% -21% -50% $ 188,098,988.06
Are coal miner’s costs on the rise?
Can met coal producers do anything to rein in soaring costs?
The Institute for Energy Economics and Financial Analysis estimates Australia’s (met) coal barons have seen their costs rise some 47% since 2021 amid what it describes as a ‘symphony’ of factors “encompassing labour and fuel costs, higher distribution costs and coal royalties.”
“Additional elements just beginning to exert their influence on embedded long-term costs include extreme weather events, rising strip ratios and new emissions management costs, such as ensuring compliance with the government’s Safeguard Mechanism,” IEEFA’s coal lead Andrew Gorringe said in an article yesterday.
Gorringe estimates open cut strip ratios have risen from 7.5:1 to 8.7:1 between 2018 and 2023, compounded by wet weather that has hit mines and rail infrastructure in coal supply chains.
“Amid the record coal prices achieved in recent years, little mention has been made of the consequent rising operating costs. Costs have been sustained at elevated levels, which has led to some operating cashflow losses. There is no reprieve in the long-term outlook for coal prices, yet the evidence is mounting to suggest a higher baseline for operational costs moving forward,” he said.
Higher royalties levied by the Queensland Government since 2022 have also had an impact, even though persistently strong prices have largely kept the sector profitable. BHP (ASX:BHP), Peabody and Glencore are among those whose unit costs include royalties.
A new progressive royalty regime issued after prices ran to record highs following Russia’s invasion of Ukraine a couple years ago, BHP has protested the measure by refusing to assign capex to its 50% owned BMA JV.
While it has recently hived off two of those mines — the lower quality Daunia and Blackwater — to Whitehaven Coal (ASX:WHC), BHP could emerge as a dominant force again if it can navigate a competitive market and tricky South African regulators to enact a proposed $60 billion takeover of Anglo American.
IEEFA’s Gorringe believes Anglo’s mines are in the top quartile of the cost curve and that margin pressure could result in mine closures as demand for met coal wanes.
At the same time, others remain more bullish about the outlook. That was evidenced in Whitehaven’s (up to) $6.4bn deal for Daunia and Blackwater, which will shift its portfolio from a less attractive 92-8 revenue split in favour of thermal coal to 70-30 in favour of steelmaking coal.
Coronado Global Resources (ASX:CRN) in its recent half year results estimated that despite global calls to reduce emissions, met coal trade flows would rise from 358Mt to 613Mt by 2050 as India becomes a major player in the steel market.
Iron ore futures were down 1.1% to US$118.30/t yesterday, while front month thermal coal futures were up slightly to US$147/t.
Coking coal futures were up 0.8% on Monday to US$255/t, with Chinese rebar up 0.7% to US$538/t.
ASX coal stocks
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CODE COMPANY PRICE WEEK RETURN % MONTH RETURN % 6 MONTH RETURN % YEAR RETURN % MARKET CAP NAE New Age Exploration 0.004 14% 0% -33% -20% $ 7,175,595.64 CKA Cokal Ltd 0.105 0% 0% -5% -30% $ 107,894,898.00 BCB Bowen Coal Limited 0.056 14% 12% -43% -74% $ 147,888,285.90 SVG Savannah Goldfields 0.028 0% 0% -43% -81% $ 9,837,972.06 GRX Greenx Metals Ltd 0.86 3% -2% -9% 18% $ 234,942,735.22 AKM Aspire Mining Ltd 0.195 0% -7% 150% 236% $ 109,141,951.78 AVM Advance Metals Ltd 0.025 4% -44% -58% -82% $ 1,139,942.43 YAL Yancoal Aust Ltd 5.77 5% 10% 25% 10% $ 7,539,709,185.27 NHC New Hope Corporation 4.7 4% 2% -12% -7% $ 3,964,623,326.16 TIG Tigers Realm Coal 0.005 25% 0% 0% -17% $ 58,800,160.66 SMR Stanmore Resources 3.34 2% 11% -12% 16% $ 3,019,661,973.90 WHC Whitehaven Coal 7.95 4% 14% 13% 17% $ 6,650,976,232.80 BRL Bathurst Res Ltd. 0.83 -6% -5% -15% -18% $ 158,828,617.40 CRN Coronado Global Res 1.18 -3% 2% -31% -25% $ 2,011,744,476.00 JAL Jameson Resources 0.031 0% 15% -24% -56% $ 13,507,732.98 TER Terracom Ltd 0.24 -11% 0% -28% -59% $ 188,227,065.23 ATU Atrum Coal Ltd 0.004526 0% 0% 0% 0% $ 11,966,853.96 MCM Mc Mining Ltd 0.13 -19% -13% -33% -38% $ 53,025,796.72 DBI Dalrymple Bay 2.86 4% 5% 4% 9% $ 1,393,090,284.27 AQC Auspaccoal Ltd 0.092 5% 35% -34% -46% $ 49,757,856.33
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