Chief economist sets scene for nickel, gold, copper and lithium

Canberra’s commodity forecasters see earnings growth ahead for Australia’s copper, gold and, eventually, lithium. But the news is not so great for nickel.

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• Department of Industry, Science and Resources forecasters see Australia's mining and energy export earnings falling in the coming years

• But production growth and strengthening prices could support copper, gold and lithium exports

• The nickel sector is looking bearish though, after BHP announced plans to shut its Nickel West business in WA

Australia's Office of the Chief Economist has released its September 2024 quarterly for commodities - and there are some great signs of improvement across copper, gold and lithium.

As usual with the enduringly pessimistic analysts at Canberra's Department of Industry, Science and Resources, our export earnings are forecast to slide in the next couple years.

After hitting a record $466.3bn in 2022-23 and an 11% drop-off to $415.16bn in 2023-24, the Office of the Chief Economist thinks the value of all mining and energy exports will slide 10.3% again to $372.4bn in 2024-25 and 4.9% to $354.1bn in 2025-26, with only substantive export earnings growth to be seen in copper and uranium.

That's mainly due to some bearish forecasts for iron ore prices.

But with that in mind, we've decided to drill down on Canberra's thoughts on some of the other commodities that matter to ASX investors.

First, we'll eat our veggies with nickel as we run through the list:

Nickel woes as Aussie production slows

Australia’s nickel export earnings continue to be impacted by falling nickel prices and production cuts – none more noteworthy than BHP's (ASX:BHP) exit from nickel in WA.

It recently suspended its Nickel West operations in WA, which accounted for 80,000t of nickel, and was one of the largest suppliers of the copper demon outside Russia, China and Indonesia – largely due to the latter's ramp-up to become the world's largest source if the metal.

READ MORE: BHP shuts nickel operations as oversupply ends turnaround tale

BHP has turned focus to copper in South Australia and South America, along with a bunch of ASX juniors.

"Nickel prices fell to US$16,600/t in the September quarter, as Indonesian supply growth outweighed production cuts in the rest of the world. New Indonesian supply growth and downside demand risks limit meaningful price increases over the forecast period," says Australia's Office of the Chief Economist's September 2024 quarterly.

"World demand for nickel remained robust in the June quarter 2024, however weakness in stainless steel production and EV sales may slow demand growth over the rest of the year.

"Weaker prices and reduced production from major mine closures are expected to see Australian nickel export earnings fall by over half to $1.4 billion in 2024–25, declining further to $1 billion in 2025–26."

Of Australia's more than half dozen or so nickel operations at the start of 2024, only IGO's (ASX:IGO) Nova and Glencore's Murrin Murrin have yet to be paused or been announced as heading into care and maintenance.

Gold shines  again

The department says Australian gold export earnings have been revised up sharply from the June 2024 Resources and Energy Quarterly, because of new record prices that have increased more than 30% since the start of 2024 and keep pushing up record highs.

"The increase is a result of continued and increasing geopolitical uncertainty, coupled with easing in global monetary conditions. Prices are forecast to remain elevated throughout the forecast period," says the department.

"In the June quarter 2024, Australian gold production decreased by 6.0% year-on-year because of lower grades and weather-related disruptions. Yearly gold production is forecast to fall slightly in 2024 before resuming growth in 2025 as new projects and expansions come online."

One of those new projects is De Grey Mining's (ASX:DEG) Mallina in WA's Pilbara which contains a whopper of deposit, Hemi, set to become a top five producer with a contained +10Moz gold and is still being proven up further as it bats off takeover offers.

READ MORE: Gold Digger: US rate cuts spark new gold record as De Grey shuns takeover offer

"Australia’s gold exports were a record $32.9 billion in 2023–24. Higher prices should lift earnings to $34.8 billion in 2024–25. Higher export volumes and prices should then lift earnings to $35 billion in 2025–26."

Gold is being sought after across all stages of the exploration and development spectrum, with bullion hunters rising to the occasion, such as Spartan Resources (ASX:SPR) with its hot Never Never discovery and Brightstar Resources (ASX:BTR), whose acquisitions of small regional players is emblematic of the M&A fever around the WA Goldfields.

Copper craze(y)

From an average of US$9750/t in the June quarter, refined copper prices averaged US$1000/t less in August 2024 because of rising inventories, a weak Chinese property sector and slower US economic growth, the quarterly notes.

Yet that's not stopping a plethora of juniors and majors alike turning towards increased exploration and production of the red metal and has a long-term demand forecast.

It's not just South America that miners are turning their focus to though, as our very own mining guru Josh Chiat tells us.

READ MORE: Australian copper enters new era where scale is king

"Global copper consumption is forecast to grow by 2.5% and 3.2% in 2025 and 2026 respectively. Growth will primarily be driven by manufacturing, the energy transition and construction in the US, China and India," the chief economist writes.

Copper prices themselves are forecast to average US$9370/t in 2024, rising to US$9766/t in 2026 and Australian copper export earnings "are forecast to reach around $15.4 billion in 2024–25, growth in production and exports will then see export earnings reach $15.6 billion in 2025–26".

Lithium to go hard from rock bottom

Australia’s lithium export earnings are forecast to fall from $9.9 billion in 2023–24 to $6.3 billion in 2024–25 before bouncing back to $8.2 billion in 2025–26. But global lithium demand is forecast to rise by an insane 17% a year between 2023 and 2026, driven by rising EV adoption.

Australia produced around 39% if global lithium carbonate equivalent supply in 2023, analysts at the department said. That will slip to 38% by 2026 despite Australia being the jurisdiction with the largest absolute growth profile.

Prices will dominate the overall direction of earnings.

"The fall (in export earnings) will be driven by a weaker lithium price, partially offset by a 55% increase in Australia’s lithium mine production over the outlook period. However, EV adoption is rising slower than expected as sales remain weak in the US and EU markets," the office says.

Good news is on the horizon though and many analysts think the lithium price has already bottomed out.

READ MORE: High Voltage: Lithium sentiment is up but prices are still under pressure

"The market surplus is expected to narrow following the suspension of some production, including a major Chinese lepidolite mine in September 2024. Australia is forecast to add more lithium supply than any other country between 2023 and 2026, but substantial supply is also expected from Argentina, China and Zimbabwe."

Originally published as Chief economist sets scene for nickel, gold, copper and lithium