• Iron ore prices received a bump after Covid lockdowns in Chengdu were relaxed
  • But they quickly retreated, with analysts saying a decision on whether to end China’s Covid Zero policy could be a big turning point for the commodity
  • Like it or not, coal miners are ruling the financial world right now

Metal heads in Australia and beyond will be waiting with bated breath for October 16, when China’s political supremos meet for the Communist Party National Congress in Beijing.

The date looms as a massive moment for China. Two years behind the rest of the world in its approach to a pandemic that started within its borders, its citizens remain subject to sudden and wide-ranging lockdowns that have put the brakes on its already slowing economy.

That has been seen most evidently in its property market, where waves of debt-laden developers are underwater, with cash flows down by a quarter this year.

That’s a big deal for miners, given the property sector makes up almost a third of steel demand and 20-30% of copper, aluminium and zinc consumption in the world’s largest manufacturing market.

Lockdowns have harmed confidence further, with the latest restrictions on 21 million citizens in Chengdu placing the metals complex in a funk over the past week, aided and abetted by fears over interest rate rises and inflation over in the West.

The end of that lockdown has delivered a small boost for prices and a lot of confidence for iron ore miners, with Singapore futures lifting 1.65% yesterday to US$98.65/t and Dalian futures back above US$100/t. BHP (ASX:BHP) shares rose more than 3% yesterday.

Both nosedived late in the afternoon however, with SGX 62% prices falling 1.13% to US$95.95/t and Dalian off 3%.

Dhar says the Covid policy in China still remains the biggest risk for commodities like iron ore.

“The main risk hanging over China’s economy and mining commodity prices remains China’s COVID‑zero policy,” Commbank mining analyst Vivek Dhar said in a note this week.

“We’re hopeful that China’s COVID‑zero policy is relaxed in early 2023 around key policy meetings in March, but still believe that lockdowns and restrictions will persist until at least the National Congress is held in Beijing on 16 October.”

Iron ore prices have fallen from around US$163/t in March, when they joined other commodities like coal and nickel in receiving a short term bump from supply fears around Russia’s invasion of Ukraine (more felt around steel and high grade iron ore than the 62% benchmark fines produced in Australia’s Pilbara), to under US$100/t.

 

Further falls unlikely?

New home prices in China fell by 0.29% month on month in August, the 12th consecutive month of falls, with the 2.7% year on year decline the largest contraction in seven years, according to Dhar.

The secondary market was also worse, down 0.35% on the month, with floor space under construction or newly started down 4.5% and 46% on the year, while floor space sold was down as well in year on year terms if not on the month.

Angry home owners have been refusing to pay mortgages because property developers have been failing to start work on their houses, generally a bad sitch, although some support has come from the loosening of credit lines by the Chinese Government.

Word came through last week that the company whose near collapse sparked the widespread fears over Chinese property, Evergrande, could restart its stalled projects.

Despite the bearish note rung by the property market’s travails, China’s steel output was up in August by 3% to 2.71Mt per day (and has kept rising in early September according to MySteel).

Dhar tells us this suggests infrastructure and industrial output is picking up some of the slack, providing support for the ~US$100/t range iron ore prices are currently enjoying. That may seem low compared to last year’s ridiculous highs of US$237/t, but those prices are still five times the headline C1 costs of the three biggest iron ore miners in Australia, Fortescue (ASX:FMG), BHP (ASX:BHP) and Rio Tinto (ASX:RIO).

“Steel margins were mixed last month, with steel rebar, which is used predominantly in construction, holding up quite well in positive territory,” Dhar said.

“However, hot‑rolled coil (HRC), which is used more in the manufacturing sector, saw margins track in negative territory for most of August.

“The steel rebar result is worth paying attention to because it signals that China’s infrastructure investment is boosting construction activity enough to offset downward pressure from a fragile property construction sector.”

At current output levels there is little need for Chinese authorities to bring in the large scale production cuts they ordered last year as well, which sent prices tumbling to US$87/t.

“It’s worth highlighting that the risk is diminishing that iron ore prices fall because of policy to keep annual steel output flat in 2022.

“That’s because China’s daily steel output remains at levels consistent with policy outcomes, despite the uptick last month. China’s policy to control steel output is driven by decarbonisation goals.”

CODE COMPANY PRICE 1 WEEK RETURN % 1 MONTH RETURN % 6 MONTH RETURN % 1 YEAR RETURN % MARKET CAP
ACS Accent Resources NL 0.03 -29% -29% -46% -44% $ 13,980,818.49
ADY Admiralty Resources. 0.009 -10% -10% -50% -50% $ 11,732,212.38
AKO Akora Resources 0.21 2% 24% -43% -7% $ 13,334,358.24
BCK Brockman Mining Ltd 0.027 -10% -23% -43% -44% $ 278,406,963.93
BHP BHP Group Limited 39.18 -1% -6% -5% 12% $ 191,538,675,222.36
CIA Champion Iron Ltd 5.4 -2% 3% -22% 6% $ 2,673,888,461.42
CZR CZR Resources Ltd 0.0175 -3% 25% 133% 94% $ 59,267,495.71
DRE Dreadnought Resources Ltd 0.12 0% 14% 200% 200% $ 349,891,358.37
EFE Eastern Resources 0.031 7% 0% -37% -28% $ 31,208,651.70
CUF Cufe Ltd 0.019 0% -10% -42% -70% $ 18,356,134.94
FEX Fenix Resources Ltd 0.265 2% -18% 8% -10% $ 142,015,619.20
FMG Fortescue Metals Grp 17.3 -6% -10% -7% 13% $ 53,727,937,819.10
FMS Flinders Mines Ltd 0.6 -9% 30% 18% -30% $ 101,309,146.20
GEN Genmin 0.225 2% -6% 25% 15% $ 63,739,766.25
GRR Grange Resources. 0.74 -13% -42% -27% 69% $ 868,004,023.50
GWR GWR Group Ltd 0.083 -6% 0% -43% -41% $ 26,660,982.37
HAV Havilah Resources 0.34 -1% -4% 89% 62% $ 107,657,331.40
HAW Hawthorn Resources 0.096 0% 4% 20% 100% $ 32,017,498.85
HIO Hawsons Iron Ltd 0.425 -16% 47% 113% 389% $ 326,063,298.00
IRD Iron Road Ltd 0.14 0% 0% -20% -26% $ 111,980,582.56
JNO Juno 0.11 0% -15% 13% -35% $ 16,278,960.12
LCY Legacy Iron Ore 0.02 5% 0% 5% 43% $ 121,729,697.78
MAG Magmatic Resrce Ltd 0.125 -29% 40% 32% 25% $ 36,748,151.72
MDX Mindax Limited 0.059 0% 0% 0% -2% $ 115,533,663.12
MGT Magnetite Mines 0.027 4% 8% -9% 8% $ 102,377,913.17
MGU Magnum Mining & Exp 0.036 6% -18% -54% -50% $ 19,187,671.18
MGX Mount Gibson Iron 0.425 -6% -4% -15% 0% $ 503,984,023.20
MIN Mineral Resources. 71.58 -2% 18% 55% 48% $ 12,879,265,348.00
MIO Macarthur Minerals 0.155 -3% -23% -62% -70% $ 25,800,558.08
PFE Panteraminerals 0.11 0% -15% -31% -71% $ 5,665,123.20
PLG Pearlgullironlimited 0.028 -10% -28% -60% -86% $ 1,537,264.62
RHI Red Hill Iron 3.65 -4% 5% 5% 24% $ 236,164,151.30
RIO Rio Tinto Limited 94.72 -1% -4% -14% -4% $ 34,296,666,011.46
RLC Reedy Lagoon Corp. 0.015 -12% -12% -44% -40% $ 8,361,403.68
SHH Shree Minerals Ltd 0.009 6% 0% -55% -18% $ 11,146,382.03
SRK Strike Resources 0.1 -9% -23% -17% -20% $ 29,700,000.00
SRN Surefire Rescs NL 0.015 -6% 0% 15% 7% $ 22,139,088.68
TI1 Tombador Iron 0.023 -10% -18% -41% -43% $ 24,691,157.44
TLM Talisman Mining 0.14 -10% -13% -20% -7% $ 26,283,529.58
VMS Venture Minerals 0.028 4% 4% -28% -49% $ 43,613,897.39
EQN Equinoxresources 0.165 6% -8% -11% 0% $ 7,425,000.17
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Coal miners run to record highs as profits continue to roll through the door

It’s the coal miners’ world and you’re just living in it.

That’s a phrase we never thought we’d say in 2022, at least not at January 1, when predictions were that thermal coal would settle back into its long term trend at or below US$100/t after power shortages sent prices to record levels the previous year.

But Russia’s invasion of Ukraine, and Europe’s newfound aversion to Putin’s cheap energy (which also includes oceans of oil and gas), proved a supply crisis not even last year’s floods, fires, strikes and rail disruptions could live up to.

Prices could get even more extreme before they ease off, with futures continuing to go for over US$350/t for delivery into the middle of next year.

It means companies like New Hope Corp (ASX:NHC) and Yancoal (ASX:YAL), which posted their full year and half year reports to the ASX respectively yesterday, continue to be in line for windfall profits.

Both saw profit rises well in excess of 1000% over the past 12 months.

New Hope Corp issued a 31c final dividend and 25c special dividend, sending more than $466 million into the hands of shareholders, including ~$175 million to its largest shareholder Washington H. Soul Pattinson (ASX:SOL).

That came off the back of a 1146% rise in NPAT to $983 million.

Yancoal, Australia’s largest pure play coal miner, already disclosed its $1.748 billion half-year profit a few weeks ago, up from a $129 million loss a year earlier.

Investors were paid a $696 million, $0.5271 per share dividend yesterday.

Yancoal expects prices for high energy thermal coal to stay strong into 2023.

“The heavy rain associated with the La Niña weather pattern continued to impact exports from Australia, exacerbating supply-side constraints. In Europe, the impending ban on Russian coal trade will come into effect in August 2022, resulting in a further re-adjustment of seaborne coal trade flows and trade balance uncertainty,” the company said.

“On the other side of the supply-demand balance, there appears to be less demand from China for coal imports due to the current economic activity levels and good levels of hydro-power generation. In contrast to lower demand from China, there is likely to be increased demand from Europe as countries restart coal-fired power stations to counter restricted gas availability and a warm summer drives increased electricity consumption.

“All these factors affect sentiment and contribute to further price volatility in the thinly traded thermal coal spot markets.

“More time is required before the international coal trade adjusts to the multiple factors disrupting energy markets. Thermal coal prices, particularly high-energy thermal coal, are likely to be well supported for the remainder of 2022 and perhaps into 2023.”

CODE COMPANY PRICE 1 WEEK RETURN % 1 MONTH RETURN % 6 MONTH RETURN % 1 YEAR RETURN % MARKET CAP
NAE New Age Exploration 0.009 50% 50% -31% -31% $ 17,230,786.92
CKA Cokal Ltd 0.225 -2% 5% 32% 32% $ 206,678,775.60
NCZ New Century Resource 1.4 -2% -26% -26% -43% $ 195,176,162.37
BCB Bowen Coal Limited 0.38 -1% 4% 43% 145% $ 526,157,994.08
LNY Laneway Res Ltd 0.0065 18% 30% 8% 36% $ 42,497,106.67
GRX Greenx Metals Ltd 0.245 14% -13% 20% -23% $ 62,137,013.68
AKM Aspire Mining Ltd 0.11 17% 24% 22% 31% $ 55,840,068.35
AVM Advance Metals Ltd 0.012 0% 33% -20% -33% $ 6,690,283.63
AHQ Allegiance Coal Ltd 0.115 -8% 10% -77% -81% $ 48,279,316.10
YAL Yancoal Aust Ltd 6.15 -10% 8% 45% 146% $ 8,054,680,565.70
NHC New Hope Corporation 5.94 8% 20% 103% 175% $ 4,547,583,838.98
TIG Tigers Realm Coal 0.019 0% -5% 46% 27% $ 261,334,047.36
SMR Stanmore Resources 2.23 -6% -9% 39% 170% $ 1,983,039,735.60
WHC Whitehaven Coal 8.63 0% 17% 116% 199% $ 7,946,617,428.12
BRL Bathurst Res Ltd. 0.915 -1% -5% -6% 8% $ 176,050,997.60
CRN Coronado Global Res 1.8 10% -2% -1% 46% $ 2,866,735,878.30
JAL Jameson Resources 0.07 -13% -13% -18% -13% $ 24,374,231.84
TER Terracom Ltd 1.02 -2% 6% 122% 538% $ 823,503,816.04
ATU Atrum Coal Ltd 0.007 -7% -16% -35% -77% $ 5,530,946.69
MCM Mc Mining Ltd 0.92 61% 254% 700% 636% $ 132,428,762.90
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