Basic Materials

Commodity spotlight: coal for cash, Chinese stimulus and rising copper supply risks

Fri 22 Apr 22, 4:06pm (AEST)
Iron Ore 7 Mining
Source: iStock

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Key Points

  • Whitehaven Coal delivers a massive March quarter result
  • Have iron ore miners hit a near-term bottom?
  • Fertiliser prices have surpassed 2008 peaks
  • Peru, the world's second largest copper producer, has called a state of emergency

Coal miners turned to cash cows

Newcastle coal futures are in the midst of a V-shaped rebound after topping out at all-time highs of around US$420 a tonne in early March.

Coal price
Coal futures (Source: TradingEconomics)

The robust demand and tight supply narrative continues to gather pace as the EU is nearing a framework to phase out Russian oil imports.

Earlier this week, Whitehaven Coal (ASX: WHC) delivered its March quarter results, making a sharp U-turn from $403m debt in the December 2021 quarter to net $161m cash at the end of March.

During the quarter, Whitehaven generated roughly $711m cash as production improved against a backdrop of record average coal prices. 

See a full list of ASX coal stocks here

Better days ahead for iron ore miners? 

Iron ore was mostly flat for the week, hovering above US$150 a tonne.

Though, it didn’t feel that way for iron ore majors BHP (ASX: BHP) and Rio Tinto (ASX: RIO), both of which have declined at least -5% this week.

Notwithstanding the macro level risks like inflation and slowing economic growth, China is stepping up stimulative efforts to help stabilise its economy as it clamps down an ongoing covid outbreak.

Could iron ore names be poised to make a bounce back next week?

Fertiliser is running hot

CRU Group's fertiliser price index is down 10 pts over the past three weeks from a record high of 390 - well above the previous record of 360 set in 2008.

cru fertiliser price index

Local potash stocks were pretty hard hit on Friday, though, in-line with the market's broad-based selloff.

The elevated potash price environment could be encouraging near-term producers such as Agrimin (ASX: AMN), BCI Minerals (ASX: BCI) and Highfield Resources (ASX: HFR).

See a full list of ASX potash stocks here.

Copper supply risk

The Peru government has declared a state of emergency as protests near Southern Cooper Corp's Cuajone Mine has reportedly halted 20% of national copper output, according to Reuters.

Peru is the world's second largest copper producer.

This further adds to Goldman Sachs' belief that copper is “sleeping towards a stockout”.

In a note from last week, the investment bank doubled its forecast refined copper deficit for 2022 to 2024, saying that:

“Without any apparent softening adjustments already underway, we believe higher prices are an inevitability - required to stimulus substantially more scrap supply as well as accelerate demand destruction to balance this market.”

29 Metals (ASX: 29M) was one of the more notable local copper stocks that tried to break out this week, though, finishing the week on a weak note amid a sharp pullback for global equities.

29M
Source: TradingView, Annotations by Market Index

 

Written By

Kerry Sun

Finance Writer & Social Media

Kerry holds a Bachelor of Commerce from Monash University and was Vice President of the University Network for Investing and Trading (UNIT). He is an avid swing trader, and drawn to breakouts and technical set ups. Outside of writing and trading, Kerry is a huge UFC fan, loves poker and bouldering.

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