I'm serious, I'll do it. Pic: Getty Images
Bulk Buys: If these budget forecasts are correct I’ll eat this hat
Mining
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- Budget forecasts again point to falling iron ore and coal prices, but history shows they undershoot
- New analysis suggests 25% of global met coal production is lossmaking, as coal prices eat into the cost curve
- Supply discipline is starting to take hold in thermal coal
Iron ore falling to US$60/t, met coal to US$140/t, thermal coal to US$70/t.
The latest numbers from the Federal Budget for key bulk commodities to hit by March 2026 provide plenty of fuel for the same doomsday columns we’ve seen for years.
But it’s worth noting there’s always a sense of theatre to these numbers, which have been routinely wrong.
Better than expected commodity performance tends to make the bottom line look better when prices stay high, even though that outperformance relies on what appear very bearish assumptions – understandable, since any government that ‘overspends’ is putting a massive target on its back.
Each US$10/t rise in the iron ore price above average forecasts would boost GDP by $5.2bn in 2025-26 and $2.7bn in 2026-27, rising to$5.6bn in 2027-28 and $10.4bn in 2028-29, with tax receipts to be $400m, $500m, $500m and $2.1bn respectively in that scenario.
At those prices all three of those commodities are well into the cost curve.
In fact, at current prices many met coal and thermal coal miners are already struggling, with Glencore talking about supply discipline.
Today we’re staring at US$101/t iron ore, US$174/t for met coal and US$96/t for thermal.
Demand has somewhat stagnated for all, but remains at high levels historically while supply growth, at least for the coal products, has struggled with underinvestment in capex and exploration alongside ESG pressure.
The latest predictions back in December from Canberra’s own forecaster, the Department of Industry, Science and Resources’ Office of the Chief Economist are not as pessimistic.
Iron ore will average US$77/t in 2025-26, it thinks, with the introduction of product from Rio Tinto and China’s Simandou mine in Guinea a factor alongside a struggling Chinese steel market, but met coal is expected to average US$205/t and thermal coal US$120/t.
On met coal, in particular, prices are already starting to get to touch and go levels for some Aussie producers.
Met coal into the cost curve
Argonaut analyst Jon Scholtz put the industry’s near-term struggles down to “robust” supply and “weak” demand, trimming the broker’s price forecast for this year 4% to US$215/t (still well above current levels) in a note this month.
But Scholz has left its long-term pricing of US$250/t intact as well as forecasts for 2026 to 2030 which escalate from US$262.5/t to US$291.4/t.
At current pricing, he says, Whitehaven Coal (ASX:WHC) generates modest earnings while Stanmore Coal (ASX:SMR) breaks even and Coronado Global Resources (ASX:CRN) will be sitting on losses and a risky looking balance sheet with US$330m of cash projected to head out the door in 2025 against cash of US$340m and debt of US$429m.
Lower coal prices have seen Argonaut cut its price targets on those stocks 11%, 18% and 22% respectively to $8, $3.30 and 70c.
With that in mind, Scholz noted that the market is now well into the cost curve, with a quarter of producers losing money at US$180/t.
“US producers, in particular, are among the most vulnerable at this level, facing squeezed margins or potential losses. Queensland producers in Australia are also struggling, generating minimal profit at current prices due to elevated operating costs and the oppressive royalty regime,” he said.
“China’s domestic producers sit lower on the cost curve, benefiting from cheaper inputs and government support, though their vertical integration (control over steelmaking and coal supply chains) makes their supply less elastic—they’re less likely to cut production even at lower prices.
“Russia, meanwhile, enjoys a subsidized cost structure, allowing it to maintain output and market share despite selling at a discount. These dynamic underscores the competitive disadvantage for unsubsidized, high-cost producers in the current pricing environment.”
Upside is capped by Russian coal, which is flooding the market at a cheap price point. But Argonaut sees the market tightening in the second half, with rising steel production in India along with global infrastructure spending, the energy transition and industrialisation fuelling “massive demand growth” longer term as supply growth remains limited.
Seaborne supply is projected to fall from 351Mt in 2023 and 369Mt in 2024 to 329Mt in 2027, a negative CAGR of 3.7%.
“This structural imbalance could underpin a robust price environment in the years ahead, though near-term volatility remains a hurdle,” he said.
Thermal coal prices have been even worse on a nominal basis, but Scholz says the lower cost base of New South Wales miners has kept them profitable.
New Hope Corp (ASX:NHC), for instance, delivered a 35% increase in NPAT to $340m in the first half of FY25 after lifting coal sales 44% to 5.4Mt.
Supply discipline could support thermal coal as well. Action is now being taken by Glencore, saying it will cut output at its Cerrejon mine in Colombia by 5-10Mt this year.
ASX coal stocks
Iron ore’s M&A cycle continues
Do iron ore majors smell a low point in the cycle?
It may not feel that way with prices at over US$100/t.
But M&A fever in the iron ore space suggests so-called ‘strategics’ see a stable long term future, certainly more so than persistent Treasury projections would suggest.
Rio Tinto (ASX:RIO) may have left it late, but its Robe River JV last week made a $75 million non-binding and indicative cash bid for the Robe Mesa project owned by Mark Creasy’s CZR Resources (ASX:CZR). With a ~33Mt reserve, that could provide incremental additional feed of a low phosphorous product prized by Japanese automakers.
READ: In pictures: How Rio has made the world’s biggest iron ore business into a machine
It comes in opposition to a $73m cash bid from Golden Valley Iron, not endorsed by CZR’s board, and a scrip bid from John Welborn’s Fenix Resources (ASX:FEX), which now holds a 13.9% stake in its target.
The Fenix bid continues to be endorsed by the CZR board, who have voted their shares into the off-market takeover offer, but they will chat to the Robe River triumvirate of Rio (53%), Mitsui (33%) and Nippon Steel (14%), saying the offer could become a superior proposal.
An update on Monday saw Robe River remove a condition that the offer would only stand if it also negotiated and executive an agreement to acquire Mark Creasy’s private Zanf Pty Ltd’s interest in Robe Mesa, through which the rich-lister owns 15% of the tenements.
It’s the latest intriguing iron ore M&A news in the Pilbara, where positioning from the majors has become an interesting game to watch.
The largest deal was Mitsui’s US$5.3bn cash splash on a 40% stake in Rio Tinto’s Rhodes Ridge JV, lining the pockets of the iron ore giant’s long-term JV partners – the descendants of Lang Hancock’s prospecting business partner Peter Wright, who will keep a 10% share.
Earlier this year Fortescue (ASX:FMG) snared last year’s top iron ore performer Red Hawk Mining in a $254 million cash takeover that saw Andrew Forrest’s iron ore miner pick up its Blacksmith iron ore project.
