Credit Suisse tips iron ore, coking coal price bonanza
17th May 2019
Resources Rising Stars
Australia's biggest export earners, iron ore and coking coal, should be fetching stronger than expected prices in coming years according to Credit Suisse (reports The Australian Financial Review).
Disruptions in the supply of both commodities have triggered a price surge in 2019, and Credit Suisse responded this week by announcing large upgrades to its price forecasts.
The bank expects iron-ore prices to increase from current levels of about $US95 ($137) per tonne to $US110 per tonne in the period between July and September, as the peak buying season for Chinese steel mills coincides with supply weakness from Brazil after January's tailings dam disaster.
Major beneficiaries of the price surge include BHP, one of the largest iron ore and coking coal exporters; Rio Tinto, a large iron-ore producer; and the governments of Queensland and Western Australia.
The Brazilian disruption was exacerbated by weather disruptions at Australian mines in the early months of 2019, but Credit Suisse said stronger than expected demand in China was also partly to blame for higher iron-ore prices.
The bank had originally expected Chinese steel output to fall 2 per cent in 2019, but now expects it to rise 1.8 per cent.
Credit Suisse still expects Chinese steel output to slide, but believes it will come later than expected in 2020 as the Chinese property sector loses momentum.
Iron-ore stockpiles in China declined by 15 million tonnes in April, and Credit Suisse said if that depletion rate continues, iron-ore scarcity and prices could peak in the period between July and September.
Credit Suisse expects iron ore to average $US85 per tonne in 2020; well above the $US55 per tonne (excluding the cost of freight, which is typically about $US6) that the Australian government has forecast for March 2020.
The Western Australian government has based its budget on iron ore averaging $US73.50 per tonne over the next 12 months, and $US65.60 per tonne in fiscal 2021.
Credit Suisse has forecast iron ore to average $US75 per tonne and $US65 per tonne in 2021 and 2022.
Credit Suisse is not the only firm predicting strong iron-ore prices in the near future; Standard & Poors expects prices averaging $US75 per tonne in 2019, then $US70 in 2020 and $US65 per tonne in 2021.
Iron ore is not the only steelmaking ingredient tipped to enjoy bumper prices, Credit Suisse believes coking coal prices will also stay strong on the back of high coal prices in China and the incentive price of bringing new coking coal mines into production.
The bank has upgraded its hard coking coal price forecast for 2019 by 27 per cent to $US203 per tonne; the price was $US212 per tonne earlier this week.
Credit Suisse expects the price to remain above $US200 per tonne in 2020 and 2021, before easing to an average $US180 per tonne in 2022.
Those forecasts are dramatically more bullish than those published last year by the world's top coking coal exporter; the Queensland government.
Queensland based its budget on coking coal fetching $US140 per tonne in fiscal 2020, then $US130 per tonne in fiscal 2021 and fiscal 2022.
The outlook was less rosy for thermal coal, with Credit Suisse saying prices for the commodity had been dragged down by a warm winter in Europe, which has led to excess coal being sold into Asia.
Credit Suisse expects premium thermal coal from the Hunter Valley to average $US85 per tonne in 2019, then fetch $US80 per tonne in the subsequent two years.
While much lower than coking coal prices, Credit Suisse's thermal coal forecasts were not bad compared to the $US49 per tonne that Hunter Valley themal coal was fetching in January 2016.
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