Iron ore miners have been looking fragile over the last week, clawing to hopes of a second half revival in the Chinese economy as the impact of its Covid lockdowns worsen.

Prices remain relatively high compared to major producer margins, with benchmark 62% fines sitting around the US$130/t mark.

But sentiment is poor. Dalian iron ore futures tumbled 7% on Monday before a 4.1% drop on Tuesday to US$115.95/t while Singapore futures dropped 2.38% to US$126.25 following a big dip on Monday.

Spot prices are heading towards bear territory having fallen almost 20% from 2022 highs of US$162/t hit in the aftermath of the Russian invasion of Ukraine.

“It’s not looking pretty this week with even more negative Covid-related headlines for Beijing, Guangdong, and Jilin released over the weekend,” Navigate Commodities Atilla Widnell said, quoted by Reuters.

“It’s looking increasingly likely that Chinese blast furnaces will struggle to justify high utilisation and operating rates in a demand- and margin-negative environment.”

Iron ore imports in China were down 1.4% in April on March levels at 86.06Mt, some 13% below April 2021. That does however reflect the epic boom conditions seen in steel and iron ore markets exactly 12 months ago, when prices hit records above US$230/t.

The funk has hit equities hard with a string of red days from the ASX 200 anchored by falls for the top resources stocks.

Big iron ore miners have been in porous territory over the past week with only a handful of smaller producers and explorers in the green.

Fortescue Metals Group (ASX:FMG) is down 12% for the week and month with Rio Tinto (ASX:RIO) off 9% and 13% over those periods.

BHP (ASX:BHP) fell 6% over the past five trading days while at the small end of town the heat has come out of high grade explorer Hawsons Iron (ASX:HIO), off 41% over the past week after a stunning 1050% return over the last 12 months.

 

ASX iron ore stocks

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CODE COMPANY PRICE 1 WEEK RETURN % 1 MONTH RETURN % 6 MONTH RETURN % 1 YEAR RETURN % MARKET CAP
ACS Accent Resources NL 0.06 0% 0% 9% 58% $ 27,961,636.98
ADY Admiralty Resources. 0.015 -6% -17% 7% -17% $ 19,553,687.30
AKO Akora Resources 0.2325 -7% -26% 19% -24% $ 15,238,142.25
BCK Brockman Mining Ltd 0.039 -5% -13% -11% -36% $ 399,049,981.63
BHP BHP Group Limited 45.02 -6% -13% 23% -10% $ 233,929,954,609.90
CIA Champion Iron Ltd 6.85 -6% -11% 65% 0% $ 3,642,113,725.80
CZR CZR Resources Ltd 0.012 -20% 50% 71% 0% $ 38,349,556.05
DRE Dreadnought Resources Ltd 0.037 -16% -20% -16% 48% $ 110,708,658.49
EFE Eastern Resources 0.037 -20% -30% -30% 270% $ 38,783,028.61
CUF Cufe Ltd 0.027 -16% -18% -16% -51% $ 27,799,758.59
FEX Fenix Resources Ltd 0.28 -11% -2% 24% -21% $ 144,539,897.60
FMG Fortescue Metals Grp 19.11 -12% -12% 31% -17% $ 60,440,081,340.34
FMS Flinders Mines Ltd 0.5 4% 0% -23% -50% $ 84,424,288.50
GEN Genmin 0.19 -5% 9% 27% -33% $ 56,657,570.00
GRR Grange Resources. 1.22 -11% 1% 147% 156% $ 1,469,820,146.46
GWR GWR Group Ltd 0.14 4% -18% 27% -53% $ 43,364,248.43
HAV Havilah Resources 0.18 -3% -14% -16% -14% $ 52,667,148.69
HAW Hawthorn Resources 0.125 -26% 9% 129% 150% $ 41,689,451.63
HIO Hawsons Iron Ltd 0.52 -41% 27% 567% 1050% $ 357,526,475.00
IRD Iron Road Ltd 0.18 6% -8% -16% -16% $ 143,625,633.48
JNO Juno 0.11 -15% -27% -12% 0% $ 14,244,090.11
LCY Legacy Iron Ore 0.024 -8% -25% 71% 50% $ 153,763,828.78
MAG Magmatic Resrce Ltd 0.063 -18% -28% -36% -69% $ 17,814,075.86
MDX Mindax Limited 0.059 0% 0% 18% 1867% $ 112,672,163.12
MGT Magnetite Mines 0.026 -10% -18% 23% -61% $ 82,153,418.91
MGU Magnum Mining & Exp 0.064 -11% -26% -33% -61% $ 36,016,218.84
MGX Mount Gibson Iron 0.63 -9% 3% 62% -32% $ 786,869,221.45
MIN Mineral Resources. 52.71 -8% -14% 36% 11% $ 10,165,784,075.91
MIO Macarthur Minerals 0.32 -22% -29% -11% -27% $ 54,019,918.48
PFE Panteraminerals 0.14 -13% -20% -43% 0% $ 7,070,000.00
PLG Pearlgullironlimited 0.062 -5% -25% -48% 0% $ 3,403,943.10
RHI Red Hill Iron 4.17 8% 19% 52% 462% $ 271,907,914.74
RIO Rio Tinto Limited 102.97 -9% -13% 16% -19% $ 39,645,891,655.20
RLC Reedy Lagoon Corp. 0.025 -19% -24% -40% 32% $ 14,257,287.98
SHH Shree Minerals Ltd 0.01 -17% -38% 0% -33% $ 13,444,605.81
SRK Strike Resources 0.165 -3% 18% 38% -38% $ 47,250,000.00
SRN Surefire Rescs NL 0.032 -32% 88% 191% 23% $ 34,730,714.10
TI1 Tombador Iron 0.032 -18% -18% -3% -68% $ 39,128,261.83
TLM Talisman Mining 0.145 -17% -15% 4% -6% $ 30,038,319.52
VMS Venture Minerals 0.041 -25% -37% -2% -64% $ 73,478,134.05
EQN Equinoxresources 0.15 -14% -29% -35% 0% $ 6,525,000.15

 

Wait and see on growth targets

China surprised with its 5.5% 2022 economic growth target and pro-economy rhetoric since the end of the Winter Olympics, which has given hope for a second half rebound led by Chinese infrastructure spending in not just iron ore but other growth driven commodities like copper.

But the seemingly endless cycle of lockdowns as Xi Jinping maintains his Covid Zero strategy is creating a wave of uncertainty.

Experts say what comes next for iron ore and steel producers, and whether China can hit its ambitious growth targets after the past month’s unplanned stumbling block is a wait and see thing.

“The government has provided some reassurance to markets by stating it will prioritise growth coming out of this period of lockdowns, adopting policies to support infrastructure, construction and the property market,” Fastmarkets MB senior price development manager Peter Hannah said.

“Certainly if we look at China’s recent track record we should probably be expecting a robust response to this current challenging period.

“However, we will have to wait and see whether these growth targets can actually be achieved whilst simultaneously managing a zero-Covid policy.

“In the short term China’s strict Covid lockdowns are likely to continue having a significant negative impact on demand for steel and its raw materials. How long they persist for and what comes next are the questions everyone is asking but no one has the answers for.”

There are some bright spots, depending on what perspective you take. For lower grade producers like Mineral Resources (ASX:MIN), Roy Hill and Fortescue, tighter mill margins have supported lower discount rates for their sub-benchmark iron ore products after wide discounts for 58% Fe fines and below hammered their margins in late 2021 and early 2022.

While China has also announced plans to keep steel production below 2021 levels, which would seem bearish for iron ore demand, Hannah said there may be positive consequences for producers as well.

“The guidance didn’t specify any target volume cuts but stated it would focus on reducing high-emission and low-quality steel capacity,” he said.

“This may mean some capped upside for iron ore demand and reduce the chances of returning to mid-2021 price levels.

“However, so long as such policies are applied more evenly across time it will hopefully avoid the see-saw volatility that we saw last year. In the long-run these policies should actually be positive for iron ore if they manage to help avoid boom-bust cycles and periods of overcapacity in the Chinese steel industry.

“A profitable steel industry is the key for a healthy iron ore industry. Furthermore the focus on cutting lower-quality production should be supportive of demand for higher-quality iron ores.”

 

Coal not immune from lockdowns but prices remain stellar

China ramped up its coal buying in April by 8% YoY and 43% MoM as it looks to avoid the power shortages that stymied its economy in the back end of 2021, hoovering up supplies amid concerns over Russian coal.

Coking coal prices in China remain high at US$506.26/t despite bearish sentiment amid the lockdowns and falling coke prices, Fastmarkets said.

Australian premium hard coking coal FOB Dalrymple Bay was up US$1.50 to US$518.43/t, enough to mint a few new millionaires from bonuses to coal executives in the C-Suites of East Coast miners enjoying outsized profits at those sorts of prices.

Newcastle thermal coal prices are currently paying US$377/t, reflecting the tightness in the industry. It’s all leading some folk to ask how long the good times can last.

Talking on an investor call fresh off announcing a US$311 million year on year turnaround – from a US$41 million loss in the March quarter of 2021 to a US$270m profit in March 2022 – accompanied by a US$200 million dividend splurge, Coronado Global Resources boss Gerry Spindler said demand for steelmaking coal will remain strong for a long time to come.

“(By 2050) the demand for metallurgical coal will go up by probably up to 50% which means in the order of 150 million tonnes per annum,” he told analysts and investors.

“In order to meet that demand between now and 2050, we need to find 170 million tonnes from new projects coming online. We don’t see that at all.

“Now I don’t want to look too far ahead to 2050, but when I look at recent reports they show actually between now and 2030 we will see an undersupply of met coal of between 40 and 50 million tonnes.

“And if we even get closer between now and 2023 … or 2024 … the demand for met coal goes up by 15%. So I think it’s a very, very exciting story for met coal in the short term, medium term and long term.”

 

ASX coal stocks

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CODE COMPANY PRICE 1 WEEK RETURN % 1 MONTH RETURN % 6 MONTH RETURN % 1 YEAR RETURN % MARKET CAP
NAE New Age Exploration 0.012 -14% -8% 9% -40% $ 18,666,685.83
CKA Cokal Ltd 0.155 -6% -16% 0% 142% $ 154,926,581.70
NCZ New Century Resource 2.35 9% 20% 1% -15% $ 297,348,918.51
BCB Bowen Coal Limited 0.32 5% 14% 88% 420% $ 478,870,859.88
LNY Laneway Res Ltd 0.0045 -10% -18% -6% -22% $ 31,510,082.05
GRX Greenx Metals Ltd 0.19 -5% -3% -20% -9% $ 48,187,888.16
AKM Aspire Mining Ltd 0.1 12% 11% 19% 18% $ 50,763,698.50
PAK Pacific American Hld 0.014 -18% -13% -18% -35% $ 6,690,283.63
AHQ Allegiance Coal Ltd 0.54 -8% 14% 15% -14% $ 210,502,875.60
YAL Yancoal Aust Ltd 5.27 10% 15% 95% 152% $ 6,773,854,311.81
NHC New Hope Corporation 3.54 7% 2% 89% 204% $ 2,904,926,216.18
TIG Tigers Realm Coal 0.015 0% -17% -35% 88% $ 209,067,237.89
SMR Stanmore Resources 2.54 20% 49% 175% 317% $ 2,127,260,807.28
WHC Whitehaven Coal 4.82 3% 16% 103% 277% $ 4,926,993,153.45
BRL Bathurst Res Ltd. 1.22 9% 18% 61% 239% $ 210,270,496.29
CRN Coronado Global Res 2.37 6% 17% 85% 316% $ 3,839,079,041.70
JAL Jameson Resources 0.084 0% 2% -1% -12% $ 29,249,078.21
TER Terracom Ltd 0.57 -5% 19% 217% 488% $ 425,788,310.95
ATU Atrum Coal Ltd 0.012 0% -14% -71% -75% $ 8,296,420.03
MCM Mc Mining Ltd 0.155 -3% 35% 55% 11% $ 30,845,354.24