London-based Capital Economics expects miners of coal, iron ore and platinum group metals (PGMs) to have a challenging 2024, with prices for the commodities set to cool further.
Capital Economics said in a research note that while it expects most commodity prices to rise in 2024 as major central banks loosen monetary policy and economic activity starts to pick up, it does not hold the same view for coal, iron ore and PGMs, minerals that are key to SA’s mining sector.
“There will probably be some upturn in demand for PGMs in autocatalysts when interest rates are cut and economic recovery prompts a rebound in slowing auto production. That said, we also expect the rapid rollout of electric vehicles in several major markets to continue at pace, which will keep a lid on increases in PGM demand,” the commodities economists said.
“Accordingly, we think there will be some increases in prices next year, but that they will be fairly muted and, for palladium, towards the lower end of the recent range of prices.”
PGM mining houses have endured a torrid year with many having launched retrenchment processes that are set to see thousands of workers lose their jobs, as prices for the metals lose their lustre.
Sibanye-Stillwater in November said the downturn in the palladium price in 2023 has “surpassed our expectations, dropping lower and faster than anticipated”. CEO Neal Froneman told Business Day last week that the company could step up its cost-cutting exercise if commodity prices deteriorate further.
While rhodium appears to have bottomed out at $4,000/oz compared with the dizzy heights of almost $30,000 in 2021, palladium sank to its lowest level in more than five years a week ago as it fell below $1,000/oz. Platinum has been relatively stable, though it is down about 13% so far in 2023.
The sharp fall in average PGM basket prices, compounded by electricity supply disruptions and general cost inflation, has eroded profit margins of Sibanye and other industry players, causing the closure of old and high-cost shafts in the case of Sibanye.
At least 4,000 employees in its local PGM operations could be without jobs at the end of the current restructuring exercise, which will affect four of its shafts at Rustenburg in the North West.
Sibanye is one of the world’s biggest PGM producers, along with Anglo American Platinum, Impala Platinum and Northam.
Anglo recently announced that it is targeting a reduction in capital expenditure of $1.8bn between now and 2026 to soften the blow of weaker commodity prices.
Capital Economics said it also expects iron ore prices to fall by $44/tonne in the next two years, coming off an already challenging 2023.
“Prices have surged recently owing to lower domestic output earlier in the year and dwindling stocks. That said, our forecast of declining steel production in China does not bode well for iron ore demand and prices,” it said.
“And even if steel production holds up, the government is promoting a move away from iron ore-based blast furnaces to electric arc furnaces that use steel scrap. We expect the iron ore price to have fallen to $90 per tonne by end 2025, from $134 today.”
Capital Economics holds a bullish outlook for gold prices, predicting the price for the safe haven metal will rise to $2,100/oz by end-2024.
The same cannot be said for coal prices, which Capital Economics expects to come under pressure.
“Europe’s coal consumption for electricity generation is down considerably year to date. This trend should continue as natural gas prices fall further next year and more renewable energy generation replaces coal in the energy mix. We forecast both the Asian and European coal prices to fall next year.”
Coal miners had a bumper 2022 as the price of the fossil fuel surged — averaging $358 a tonne — as punitive Western sanctions on Russia for its invasion of Ukraine pushed European buyers to pay top dollar for fuel to fire power plants.
Russia was Europe’s biggest supplier of coal and natural gas before the war.
Coal prices have since fallen more than 60% — a reality that is reflected in the recent reporting cycle of listed coal miners. Exxaro Resources in August reported a 32% drop in profit on lower thermal coal prices and SA’s logistics challenges.
Thungela, the coal miner spun off from Anglo American, reported a R3bn profit for the six months to end-June, down more than two-thirds from the R9.6bn recorded for the same period last year.
With Andries Mahlangu
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