BHP $100 Target !, page-104

UBS today: Iron Ore & Coal 1Q24 - How's the Value-In-Use cost curve tracking? WoodMac has updated its value in use (VIU) cost curve for 1Q24; key takeaways are: (1) 90th percentile is +7% q/q to $86/t driven by persistent labour & general inflation, as well as downward adjustments to pellet premiums & a weaker US dollar. The 95th percentile is ~US$100/t . (2) Regional trends: the global average VIU adjusted cost for 1Q24 increased +2% q/q (+8% y/y) to $58/t, with AU +2% q/q to $52/t, China +5% q/q to $83/t and BR +4% q/q to $52/t. (3) Industry margins fell modestly q/q to ~55% in 1Q24 from ~56% in 4Q; they remain well above the 2015-18 average of ~32%. Based on the WoodMac data, there is ~180Mt of production in the 90th percentile of the value in use curve, of which ~70Mt is based in China, ~65Mt in Australia, and ~45Mt in RoW. We note the iron ore spot price has over the last 7 years found cost support at $80-100/t, only trading below $100/t for a short period in Nov-21, Oct-22 & in May-23 when China sentiment was weak. When the market was last in surplus in 2017/18 (pre- Brumadinho) iron ore price bounced off the 90th percentile in the value in use curve; it tracked the 75th percentile in 2015/16 when the market was concerned about a China hard landing & costs were deflating rapidly.