Ground Breakers: If this week’s lithium blues had you down, the smooth sound of iron ore will soothe your soul
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China’s exit from its interminable Shanghai lockdown earlier this week has provided a rocket for iron ore prices, dovetailing with Communist Party plans for State-owned banks to dole out 800 billion yuan ($165 billion Aussie bucks) to stir up the local economy.
That’s great for iron ore, which is riding on a pure wave of sentiment right now.
The exit of the lockdowns and promise of new lines of credit stirred what has been a sleeping bear for much of the past month to its largest one day gain in weeks, rising 6.4% to US$141.95/t for benchmark 62% fines.
More could come tonight if bullish buying in the Chinese futures market is an indication.
Dalian futures for September were up 3.77% for their fourth consecutive morning of gains.
Is there more upside in iron ore? ANZ’s commodity strategists Daniel Hynes and Soni Kumari are unsure, noting limitations on steel output growth in China could mean right now is ‘as good as it gets’, with conditions unlikely to support the US$230/t records we saw last May.
“Iron ore prices have found a floor amid renewed supply side issues. This could develop into gains as Chinese stimulus measures boost sentiment. Ultimately the upside looks limited, as constraints on China’s steel output should keep demand muted,” they said.
“With China announcing stimulus aimed at boosting economic activity, we expect a restocking effort in the second half of 2002 to stimulate demand and lift iron ore prices. However, the upside will be limited.
“Constraints on steel output remain, while easing regulations on the housing sector won’t solve its underlying issues. This may be as good as it gets.”
The steel and iron ore markets have been supported in part by the absence of Ukrainian supply from the market. While Ukraine is a small producer, it and Russia are accountable for around 30% of global DRI pellet supply, ultra high grade iron ore used in low emissions steelmaking technologies.
The Pilbara Big Three were all launching today as the materials sector, with Fortescue Metals Group (ASX:FMG) leading the pack with a 4.08% gain as the index lifted 2.66%.
Fellow iron ore miner Mineral Resources (ASX:MIN) was also up more than 4%, exposed both to iron ore prices and a rebound for lithium stocks as the battery metals sector began its recovery from Goldman Sachs’ ‘top of the market’ call earlier this week.
MinRes also began the environmental approval process today for an extension of its Utah Point iron ore export supply, lodging a referral for the 10Mtpa Lamb Creek iron ore mine 130km northwest of Newman.
MinRes is the main user of Utah Point, a berth at Port Hedland designed to support the growth of the iron ore industry outside the majors.
MinRes subsidiary Process Minerals International says iron ore from Lamb Creek would be shipped at a rate of 10Mtpa for three to five years with construction planned to begin in the first quarter of 2023, commissioning in the third quarter of next year and mining to ramp up from the December quarter to the first quarter of 2024.
It is one of a number of new projects ~20Mtpa MinRes is working on as it looks to bridge a production gap to Gina Rinehart’s Roy Hill, which ships around 60Mtpa, with larger developments of the Ashburton and Pilbara hubs planned in the coming years.