Material Matters: Gold, Thermal Coal & Alumina

Commodities | Apr 16 2021

A glance through the latest expert views and predictions about commodities: gold; thermal coal; copper; aluminium/alumina; and iron ore

-Mixed signals for gold
-Heavy hand of China's government on coal
-Deficits looming long-term for copper, aluminium
-Iron ore could be in surplus within a year


By Eva Brocklehurst


Macquarie observes gold has found support from headlines regarding the side effects of the Johnson & Johnson coronavirus vaccine and the US roll-out pause. Also, the US headline CPI rose to 2.6% (annual) in March but the core rate increase was sufficiently modest for bond yields to fall on the news and gold to head towards US$1750/oz.

Nevertheless, almost half of the US population has now received one vaccine dose and, with measures of mobility (people getting out and about) at around 90% of pre-pandemic levels, the broker expects strong growth momentum will be sustained and ultimately push up bond yields.

While this should place commensurate pressure on gold, Macquarie asserts that until a tapering of rates by the US Federal Reserve begins to be priced in with greater conviction, gold should be able to hold its current range.

Canaccord Genuity updates pricing assumptions for gold and silver, along with the Australian dollar, to reflect the current spot forward curve. Since January, the broker notes the long-term US dollar gold curve has reduced by -10.5% to US$1796/oz.

Shorter-term assumptions have decreased on average by around -12% for 2021-23. The broker reduces its Australian dollar forecast to US$0.75 resulting in a -8.8% decrease in the long-term Australian dollar gold price forecast to $2391/oz.

As a result of the updated assumptions, the broker's price targets for the gold producers are reduced by an average of -15% along with -14% for developers/explorers.

Evolution Mining ((EVN)) is downgraded to Hold from Buy. The broker's top pick among the senior producers is Northern Star Resources ((NST)) amid the unlocking of synergies now the merger with Saracen is complete.

Among intermediate and junior producers, Canaccord Genuity prefers Perseus Mining ((PRU)) as the successful delivery of the Yaoure project is expected to increase production by around 90%. The broker also likes Gold Road Resources ((GOR)) because of its proven ability to deliver constant cash flow.

In developers/explorers Bellevue Gold ((BGL)) is the preferred stock with a stage 2 feasibility study expected later in the current quarter.

Thermal Coal

It is becoming more and more apparent to Macquarie that China's domestic coal supply is now linked to central and local government policy rather than market forces. After a recent spike in the price, the central government is now asking the large miners to increase output again.

The other possibility is an increase in import quotas (of non-Australian material), the broker suggests. The domestic thermal coal price has been very volatile since late last year and, as Macquarie points out, a large rebound in the price recently attracted government intervention.

After production was pushed up during winter months the broker notes output has now become relatively constrained, consistent with the increase in environmental and safety inspections observed on the ground.

Official data for March has not been released but railway transport data to northern ports signals domestic coal supply may be at a similar level to January/February instead of showing a normal seasonal improvement.

Should local governments relax their restrictions under pressure from the central government, Macquarie estimates April's coal supply could grow by over 7-8% year-on-year, although with three accidents over the past week - in Shanxi, Guizhou and Xinjiang - this could limit the extent to which they comply.


Goldman Sachs upgrades estimates for copper, expecting US$5.39/lb in 2022 and a long-run price of US$4/lb. The outlook for copper producers under the broker's coverage improves, resulting in an upgrade for Sandfire Resources ((SFR)) to Buy from Neutral.

Most of the value is ascribed to the growth project in Botswana. On the other hand OZ Minerals ((OZL)) is continuing to run well ahead of spot copper and the broker maintains a Neutral rating.


Goldman Sachs is also bullish on aluminium expecting a price of US$1.13/lb in 2022, 10% ahead of spot prices. The broker foresees long-term deficits for both copper and aluminium on rising demand from the renewables and a lack of new greenfield projects.

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