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An overview of metals opportunities

12 Aug 2021 3 month(s) ago

Electric cars are going to change the metals market.

Investing in the Australian context means looking at metals stocks. The Diggers & Dealers Forum is a place where the latest thinking is tabled, and the push towards electric cars is changing everyone’s thinking.

Macquarie says battery minerals demand is likely to be a major thematic. “The rise in lithium prices in recent months is likely to place the battery minerals stocks taking centre stage at the Diggers & Dealers Forum. ?

Base metals also playing a role, says Macquarie “Nickel and copper also benefit from the rising demand for Electric Vehicles. The recent rise in nickel prices and BHP’s recent acquisition of Noront Resources is likely to see further consolidation potential within the nickel sector be a key talking point. We note the BHP’s presentation will focus on the Nickel West business. ?

Macquarie says COVID-19 travel restrictions are impacting costs in the industry. Cost pressures have already been outlined in the majority of the June quarter production reports and we expect labour shortages and cost pressures to be a major topic of conversion during the Forum. ?

“In the lithium sector, we prefer IGO and Pilbara Minerals of the producers and Liontown Resources as our key development play. In base metals Western Areas and Mincor are preferred for production and development/exploration while Sandfire Resources is our key mid-cap copper stock. Iron ore continues to dominate earnings and cash flow in the mining sector, with Fortescue Metals our preferred pick among the presenters.”

With its gold picks Northern Star Resources is preferred because “superior production growth is the key driver behind our preference over Evolution Mining while Newcrest benefits from strong copper by-product credits, which offsets some of the industry cost pressures. Bellevue Gold remains our preferred pick of the gold exploration and development stocks.”

Macquarie's picks are pretty uniform:

Morgan Stanley notes that aluminium hit a 10-year high this week as further power shortages hit smelters in Yunnan province and the strike at Kitimat continued. Nickel rallied as supply disruption continued through SE Asia; zinc climbed back above $3k/t and copper found support from twin Chilean strike threats at Andina and Escondida, as well as a weaker US dollar.

Gold initially rallied in the aftermath of a dovish FOMC meeting, but other precious metals failed to keep pace with gold's move, with silver flat on the week.

“The iron ore sell-off continued for a second week in row, with the price dropping to $181/t on Friday, as buying interest from China's steel mills slowed markedly due to softening steel demand and environmental production cuts. Meanwhile, the Australian hard coking coal and thermal coal prices both traded sideways, close to $215/t and $150/t respectively.

“Although we see the iron ore market returning to a similar supply-demand situation as in 4Q20 through the balance of the year, we expect the price not to fall as far as the $134/t it averaged in 4Q20.”


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