• ASX materials sector gains more than 2%
  • Outright leader is MinRes after speculation about a US spinout of its multi-billion dollar lithium business
  • European power prices could further crunch global zinc and aluminium supplies

Efforts to support the battered and bruised Chinese property market sent iron ore prices back over US$100/t yesterday and base metals higher, inspiring a 2% run in the ASX materials sector.

That was supported by a ~5% gain for Andrew Forrest’s Fortescue Metals Group (ASX:FMG), the big miner on the ASX most exposed to iron ore prices.

But it was another big miner which ruled the roost. Mineral Resources (ASX:MIN) has been in the news for plenty of reasons lately, from court cases to weird promotional videos, iron ore approvals (and squabbles) and lithium.

That last one has inspired its biggest run this morning, sending MinRes prices up nearly 12% to a record of over $70 a share after the AFR reported JP Morgan was pricing up a proposed New York listing for its lithium business.

MinRes’ lithium assets are the most exciting part of Chris Ellison’s mining services and mining empire to many investors and analysts.

Its lithium assets — stakes in the Wodgina and Mt Marion mines in WA as well as minority interests in downstream processing — generated $585m in EBITDA alone in FY22, nine times MIN’s iron ore business.

According to the Fin, brokers say the company is keen to chase higher multiples producers like its US JV partner Albemarle is getting as a pure play lithium producer and realise billions in value from the canny investment it has made in the battery metal.

Ellison has also stated his desire to sign up a major battery producer to build a battery plant in WA as a long term growth target.

MinRes put out a statement addressing the report today. It didn’t deny it was looking at a potential demerger, but that “any previously undisclosed potential strategic initiatives being considered by MinRes are not sufficiently advanced or certain to warrant disclosure.”

 

Mineral Resources (ASX:MIN) share price today:

 

 

5% of zinc supply could exit market due to European energy crisis: ANZ

Russia has been slowly but surely choking the life out of Europe’s traditional gas supplies since its invasion of Ukraine began.

It means power prices have reached crazy levels as European countries soak up rare and constrained coal supplies to cover an absence of cheap Russian gas from their power networks.

That’s a big problem for aluminium and zinc smelters in the region, once responsible for 30% of the world’s supply of the finished metals and now around 12-17% with the rise of Chinese manufacturing.

ANZ commodity strategists Daniel Hynes and Soni Kumari estimate around 1% of aluminium supply and 5% of the world’s zinc supply is at risk of being switched off, with a string of big companies announcing plans to curb production at high costs smelters.

Metal smelters are notoriously energy intensive, with around 40% of their operating costs coming from electricity in normal times.

Surging spot power prices, which have quadrupled this year to around 600 Euros per megawatt hour in the continent’s largest economy Germany, mean average costs for Euro aluminium and zinc smelters could explode.

If high power prices hold, aluminium smelters exposed to spot electricity could see costs 3.5x 2021 levels next year, taking 600,000t off the market.

“The European smelting industry is facing a bleak future amid surging energy prices. This could increase the number of closures, exacerbating ongoing supply side issues across the sector,” they said.

“Smelting of metals is an energy intensive business. Based on current electricity prices, operating costs for some European zinc and aluminium smelters has increased two to three times over the past year, making them uneconomic.

“Overall, we estimate that over the coming months approximately 1% of the Europe’s suppliers of aluminium and zinc are at risk of closure and 5% of world suppliers. The risk of lower steel, nickel and copper output is also rising.

“Markets are ill-prepared to make up such a shortage. They have a limited buffer, with the drain on stockpiles being sharp over the past year. Other producers are also hampered. China is facing its own energy issues, while output from South America has been cobbled by environmental, social and governance (ESG) issues, labour shortages and high energy costs.”

Aluminium exchange inventories have already fallen 77% to 470,000t since mid-2021, with nickel inventories down 35%, copper down 52% and zinc down 58% this year, with aluminium and copper at just two days of consumption.

Prices have been hit by demand issues out of China, but if it can reinvigorate its troubled economy and end its cycle of Covid lockdowns, expect supply issues to become a big factor in aluminium and zinc pricing.

 

Aluminium and zinc stocks share prices today: