Cit has published its annual commodities 2022 Outlook and says that, after five solid quarters of outperformance, it expects the sector to take a breather, setting up a “more diversified sector for 2022 and 2023”. Citi expects energy and bulk commodities will underperform the market and that base metals will outperform.
Iron ore is expected to stage a U-shaped price move next year as China eases credit sales and property bounces back. Citi expects iron ore prices to average US$88/t in the June half and $105 in the second half, before retreating in the longer term to $60/t-$80/t as the seaborne market declines.
Citi also forecasts higher lithium prices but spies cost headwinds as energy inflation, higher feedstock prices, wages and logistics costs kick in.
Citi upgrades Whitehaven Coal to Buy from Neutral after the recent strong retreat in the share price. Target price eases to $3.20 from $3.50 to reflect a weaker earnings outlook, the broker forecasting lower thermal coal prices ($110/t from $120/t in CY22; and CY23 unchanged at $75/t).
FY22 earnings forecasts fall -9% but Citi says the discounted cash flow valuation is still strong at $4.40 a share; expects the balance sheet to be net cash; and notes the company is offering a dividend yield of 6.3%.
Sector: Energy.
Target price is $3.20.Current Price is $2.52. Difference: $0.68 – (brackets indicate current price is over target). If WHC meets the Citi target it will return approximately 21% (excluding dividends, fees and charges – negative figures indicate an expected loss).
