Ground Breakers: Metals bounce as hopes on Chinese demand strengthen

Metals prices rebound as China promises to support economy coming out of Covid lockdowns
Iron ore and coal miners perform well as materials stocks lift 0.82% and energy rises 1.55%
Perseus and OZ Minerals chase growth with acquisitions

While this has the slightest whiff of dead cats bouncing, resources investors are poised for their best day in ages as metals revived overnight.

The trigger appears to be optimism around Chinese infrastructure and property investments, with the People’s Bank cutting interest rates on new mortgages and Covid cases easing outside quarantine in Shanghai, the country’s commercial and trading heartland.

Iron ore rose US$2.08 to US$129.05/t, with Dalian futures up, while base metals performed well across the spectrum with aluminium continuing its recovery to climb 1.6% to US$2832/t.

Copper gained 0.9% to US$9239/t, zinc was up 2.1% at US$3563.50/t and all of the precious metals rose on a weaker US dollar.

The only laggards were nickel, off 2.6% to US$26,549/t to hit its lowest level since the short squeeze that shocked the market in March, and Chinese Rebar steel, putting pressure on steel mill margins.

Along with dropping the mortgage rate, China is using its various propaganda arms to sell a positive story on a few very ordinary looking economic stats released yesterday.

“While China’s economy was affected severely by the pandemic, the impact of the outbreaks is temporary, according to NBS (National Bureau of Statistics),” the State-owned China Daily stated.

“NBS said the fundamentals sustaining China’s steady and long-term economic growth remain unchanged, and the country has many favorable conditions to stabilize the overall economy and meet the preset annual targets.

“China’s economy is likely to rebound gradually with the government’s effective measures to contain COVID-19 outbreaks and step up policy support, NBS said.”

Who was up this morning?

The materials and energy indexes led the market in exiting the blocks fast this morning.

Its 0.82% charge was led by large iron ore miners, with Fortescue Metals Group (ASX:FMG) up 2.11%, Rio Tinto (ASX:RIO) climbing 1.58%, Mineral Resources (ASX:MIN) rising 5.2% and mid-cap iron ore plays also looking tasty with Mount Gibson (ASX:MGX), Grange Resources (ASX:GRR) and Champion Iron (ASX:CIA) all lifting.

In the energy market Whitehaven Coal (ASX:WHC) rose 5.09% to $5.16, its highest share price since late 2018 with coal prices remaining very frothy, while Coronado (ASX:CRN) was up 4.13% and Yancoal (ASX:YAL) rose to an all time high of $5.70.

In the mid-cap space Calix (ASX:CXL) and Pilbara Minerals (ASX:PLS) were both up after announcing a $20 million modern manufacturing grant for their low-carbon mid-stream lithium salts production process at Pilbara’s Pilgangoora mine.

Acquisitions were in focus as well, with Perseus Mining (ASX:PRU) announcing the plan of arrangement to pick up Canada’s Orca Gold was approved by the target’s shareholders.

Perseus announced the C$215 million deal in February, which will deliver the high-flying gold miner Orca’s Block 14 gold mine in Sudan and help boost the ASX-listed company’s production profile to 500,000ozpa once the 2.9Moz project is developed.

Also on the hunt is copper miner OZ Minerals (ASX:OZL), which announced an option deal to acquire junior Havilah Resources’ (ASX:HAV) Kalkaroo open pit development in South Australia.

OZ can acquire the PFS stage copper-gold project in a staged deal including a $205 million payment following 18 months of study work if the option is exercised and a series of contingent payments of up to $200 million on drilling and production milestones.

OZ says it will spend up to $76 million during the option phase and alliance period, including $18 million of payments to Havilah, half of which will be used by Havilah in an exploration alliance to assess prospects within the broader Curnamora Province.