Iron ore party seen as raging on as Biden’s billions tip fuel on the steel fire

Macquarie Bank’s headline-grabbing iron ore price forecast last week of $US200 a tonne for later this year has been raised by Citi, a rival bank, which reckons the ore price could stretch out to $US210/t in the September quarter.
7th May 2021
Tim Treadgold

Macquarie Bank’s headline-grabbing iron ore price forecast last week of $US200 a tonne for later this year has been raised by Citi, a rival bank, which reckons the ore price could stretch out to $US210/t in the September quarter.

“No turn of the iron ore tide just yet,” is how Citi summed up a red-hot commodity even as it eased back below $US190/t this week but which continues to be driven by global economic stimulus spending and the return of consumers armed with trillions of dollars in the U.S.

There is, however, a catch to Citi’s forecast in that it comes in three parts: bull, bear and base predictions with $US210 the peak for the third quarter of this year and $US135/t a possibility in a bear market, with the mid-point base case coming in at $US185/t.

“We expect iron ore prices to set new highs of $US210 over the next few weeks before consolidating to an average of $US185/t during the second and third quarters and then down to $US160/t in the fourth quarter,” Citi said.

Boiled down, Citi sees one last hurrah for iron ore before gravity drags it back down to around $US110/t by the end of next year, and perhaps all the way to $US70/t.

Super high iron prices might hang around for a bit longer, but some investors are already heading for the exits of what has been an enormously profitable period for producers such as Fortescue Metals, which is showing signs of “optimism fatigue” struggling to stay above $25 a share over the past few months having peaked at $26.40 in early January.

Smaller iron ore miners have also been struggling. Champion Iron, which traded up to $7.09 last months has been easing for the past two weeks, as has newcomer Fenix, which reached 38c before easing back to around 32c.

If iron ore is indeed a star destined to fade by the end of the year, the same cannot be said for the rest of the commodity complex, which is heating up to a level which has central banks on inflation and interest rate watch.

Investors would do well to consider the latest thoughts of U.S. Treasury Secretary, Janet Yellen, who warned early this week that interest rates might need to rise sooner than planned “to make sure our economy doesn’t overheat”.

If the U.S. moves up, Australia and other countries will follow in a procession that will recalibrate the risk profile of all asset classes, including gold, the world’s ultimate reserve currency which is sensitive to rising rates.

Gold this week tried again to climb over the $US1800 an ounce barrier but failed, not that analysts at J.P. Morgan are unduly concerned. They reckon that while March quarterlies from the goldminers were “underwhelming”, there were few downgrades even as costs rise.

J.P. Morgan is concerned that some gold producers might have expanded too quickly and while saved by a gold price likely to stick around $US1750 an ounce in the short term, it should see growth plans “re-prioritised” at an Australian gold price of $A2200/oz (it is currently $A2302/oz) rather than the $A2800 of a few months ago.

Takeover activity is tipped by J.P. Morgan to increase: “As plans get reset and some get more difficult, we expect increased motivation to replace reserves and grow production through mergers and acquisitions,” the bank said.

Gold news this week featured encouraging drill results and project news that included:

  • Great Boulder encountering 6 metres at 31.2 grams of gold a tonne (the old one ounce to the ton) from 130m at the Mulga Bill prospect in WA. On the market, Great Boulder effectively doubled to 11c.
  • Alkane added 10c to 86c after reporting thick intersections of copper/gold at its Boda project in NSW with a best hit of 383.2m at 0.8g/t gold and 0.31% copper from a depth of 775m with high grades zones of up to 3.04g/t gold and 0.92% copper over 70m from 829m, and
  • Northern Star reported an 8% lift in group gold reserves to 21 million ounces, driven by an uplift in open pit and underground resources at the Kalgoorlie Superpit. The stock added 40c to $10.80 but Macquarie reckons it’s heading for $12.20 and RBC says $13.75 is the target.

Battery metals remained firmly in the sights of investors as concern grows about a future potential shortfall of critical minerals with the normally oil-focused International Energy Agency published a report which said supply of copper, lithium and nickel needed to rise sharply if the world’s climate change goals are to be met.

On the Australian stock market, lithium stocks moved higher, led by Pilbara Minerals, which added 7c to $1.18, Galaxy, up 22c to $4.02 and Vulcan Energy, up 38c to $8.12.

On a slightly different but still commodity-related theme, it is interesting to see the way Australian agricultural stocks are riding the boom with a number of spectacular price moves, including wheat and wool both up 14% since the start of the year, corn up 54%, beef up 12.5% and canola up 48%.

Once an important category for Australian investors, the rising prices for a number of the country’s major agricultural exports has got investment banks back on the case, including a report from Wilson Stockbroking that “seasonal and commodity price tailwinds” are continuing to drive the farm sector.

The broker has upgraded its valuations and share price tip for Costa Group, a big fresh fruit and vegetable producer, from $4.63 to $4.70, Elders (one of the oldest farm services companies) from $8.57 to $9.53 and Nufarm, a farm chemical company, from $4.29 to $4.69.

Other news and market moves of interest this week included:

  • A solid round of capital raising that featured New World getting $20 million through an institutional placement to accelerate work at its Antler copper project in the U.S. Black Cat Syndicate also raising $20 million for its Kal East gold project in WA, and Caravel Minerals raising $7.5 million for its namesake copper project adjacent to the Julimar palladium discovery of Chalice Mining near Perth.
  • Shaw and Partners named Sandfire Resources as the best performer in the recently completed March quarter reporting season thanks to a share price rise of 23% after it reported, comfortably ahead of second best, Fortescue Metals which rose by 12%.
  • Mincor received a fresh buy tip from Macquarie Bank which sees the nickel project developer rising from its current $1.02 to $1.30 thanks to ongoing strength in the nickel price despite reports of a metal surplus developing.
  • Boss Energy added 4c to 19c after reporting that a review of government permits showed that it had everything required to re-start production at the Honeymoon well uranium project in South Australia.
  • Sunrise Energy Metals, formerly Clean TeQ, reported which it said was a “stunningly high-grade intersection of platinum” from the first hole at its Phoenix project in NSW with a best intersection of 129g/t of platinum over 0.6m from a depth of 256m, with useful grades of palladium (1.23g/t) rhodium (1.79g/t) as well as iridium, osmium and ruthenium. On the market, the stock added 27c to $2.48.
  • Stavely Minerals added 4c to 60c after reporting outstanding assays of up to 10% copper and 25g/t gold from the latest drilling into the Cayley Lode at its Staveley project in Victoria.
  • Taruga Minerals reported encouraging copper assays from drilling at its Mt Craig project in South Australia including 5m at 2.4% copper from a depth of 17m with a 1m core in that zone grading 9.5% copper. On the market, Taruga added 2.5c to 8.4c, and
  • Hillgrove got a 1.5c share price lift to 6.3c after reporting a thick intersection of copper and gold mineralisation deep beneath the historic Kanmantoo mine near Adelaide. Best hit was 170.65m at 1.01% copper plus 0.11g/t of gold from a depth of 339m.

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