Material Matters: Copper, Aluminium, Iron Ore, Lithium & Bauxite

Commodities | Jul 12 2022

A glance through the latest expert views and predictions about commodities: Recession scenarios for aluminium, copper and iron ore; preferred ASX lithium stocks and one small-cap bauxite stock.

-Copper to fare worst under Credit Suisse recession analysis
-Iron ore less exposed than industrial metals
-A material fall for lithium prices?
-Australian bauxite exports set to prosper
-Shaw and Partners identifies one small-cap bauxite stock

By Mark Woodruff

Recession scenarios for copper, aluminium and iron ore

After analysing the impact of a recession upon commodities, Credit Suisse concludes copper and aluminium prices would both feel the negative impact.

While aluminium prices may already be near lows and could find support from both constrained supply and higher energy/input costs, the broker sees potential for copper prices to fall for a longer period, due to a new wave of supply coming onboard.

The broker remains constructive on iron ore and is also positive on coal prices in the event of a recession, with elevated thermal coal prices from the ongoing global energy crises providing a floor.

In recessionary times, Morgan Stanley also notes that iron ore is less exposed compared to other industrial metals that are more susceptible to consumer-focused end-markets.

A positive view on coal prices means analysts at Credit Suisse see more resilience for BHP Group ((BHP)) compared to Rio Tinto ((RIO)); the latter would be weighed down by its aluminium exposure.

While Fortescue Metals Group ((FMG)) would benefit from its lack of base metals exposure, it would fare the worst by comparison to the major miners in a downside scenario for iron ore prices, explains the broker.

Stepping away from these scenarios, Credit Suisse cites China’s determination to accelerate infrastructure spending to reach its GDP goal as part support for a recovery in iron ore prices into 2023. Low iron ore port inventory levels are also expected to provide support.

For the second half of 2022, Morgan Stanley sees some downside risk for the iron ore price during the usually quiet summer months in China for steel end-use demand. There are already signs of a looser iron ore market, with Chinese port inventories building up last week for the first time since mid-February.

Also, current crude steel output in China is on-track to overshoot the National Development and Reform Commission’s (NDRC) objective to reduce the country’s full-year steel production, explains the broker. As a result, the NDRC is expected to pursue production curbs in the second half of the year, with the aim to prioritise quality over quantity.

However, Morgan Stanley expects a return of price support by autumn in China, due to a higher marginal cost of supply and a recovery in China's steel margins.

A material fall for lithium prices?

Credit Suisse sees a risk that the lithium market could return to balance (or even oversupply) in 2023 with the advent of new supply and the prospect of a global economic slowdown lowering electric vehicle demand. It’s thought this outcome could result in a material fall for lithium prices, with a potential overshoot to the downside.

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