Ground Breakers: Iron ore back above US$120/t, but how long can it last?

Iron ore prices lifted above US$120/t yesterday as credit growth in China brought traders to the table

But experts say China’s weak property sector should send prices lower before the end of 2023

Liontown awards $100 million plant construction contract to Monadelphous in bit to get Kathleen Valley online by mid-2024

Iron ore’s dramatic charge past US$120/t has done little to stir the ASX materials index, with BHP (ASX:BHP) and Fortescue (ASX:FMG) in the red to steer the sector to a 0.89% fall this morning despite a solid opening for lithium M&A targets like Liontown Resources (ASX:LTR) and Azure Minerals (ASX:AZS).

The run yesterday in iron ore futures seemed to defy logic.

House sales in Beijing fell 35% in a week to 1700, ANZ’s Kishti Sen said in a note, with overall property transactions down 20%.

Sen says stronger credit lines are what traders are focusing on. How long that sentiment holds remains to be seen, given Baosteel still says production curbs will come later this year after a strong start to 2023 for Chinese crude steel output.

Over at Commbank, mining expert Vivek Dhar said a slight pick up in social financing in the Middle Kingdom to 9% year on year in August, the first acceleration in five months, underpinned the enthusiasm around Chinese demand.

As bond issuances temporarily pick up, he said, there have been hopes that infrastructure would step in to stoke steel and iron ore demand where property has been failing.

Not so fast. Dhar thinks iron ore prices will fall back to US$100/t (for benchmark 62% Fe product that is) before year’s end.

“While it is still too early to conclude how successful the mortgage easing rules have been, the concern remains that the policy support measures announced to date won’t be enough to arrest the decline in the property sector,” he said.

“For iron ore prices in particular, we need to see credit‑strapped property developers build new apartment buildings.

“New construction starts have slumped ~25%/yr in the first seven months of 2023 after collapsing ~39% last year. Our view that new construction starts won’t recover until 2024 underpins our forecast for iron ore prices to fall to $US100/t in Q4 2023.”

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Monadelphous sharpens lithium knives

While the mining world is absorbed with the M&A shenanigans surrounding Liontown Resources, where an 11th hour play from Gina Rinehart to insert her Hancock Prospecting into the picture is raising eyebrows, work keeps on keeping on to get the Kathleen Valley lithium mine ready to produce spodumene by mid-2024.

Its latest construction news is a $100 million deal that will see engineering firm Monadelphous (ASX:MND) awarded a nine-month contract on wet plant structural, mechanical, piping and electical and instrumentation work at the 500,000tpa plus Kathleen Valley mine in the WA Goldfields.

It will include the installation of 1200t of structural steel, 20,000m of pipe, 600 mechanical equipment items, 200 platework items and critical infrastructure at the Kathleen Valley plant including a SAG mill, magnetics circuit, flotations circuit, tantalum recovery circuit, concentrate dewatering and tails treatment.

“By deploying lessons learned from industry peers the wet plant has been designed to a high specification with quality and hard-wearing materials, including polyurethane-lined steel piping and ceramic lined highwear areas, designed to reduce future maintenance requirements,” Liontown said.

“In addition, the adoption of the lessons learned will be applied during the commissioning and ramp up of the plant.”

Liontown boss Tony Ottaviano said it gave the developer, which has to split focus with other matters including Albemarle’s due diligence on its $3 per share $6.6 billion bid for the company, a “clear line of sight to first spodumene production mid-next year”, also noting it was the final major construction contract at KV.

It follows the award of a $1 billion, four-year contract to Byrnecut to develop the world’s first underground lithium mine.

Meanwhile, it sharpens Monadelphous’s expertise in the lithium space after the contractor last week announced the award of a $160m contract to help construct a new chemical grade lithium plant at Talison’s Greenbushes mine in WA’s South West.