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Monsters of Rock: Are commodities going to tread water as China’s property woes persist?
Mining
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- Base metals and battery metals prices have stagnated as China faces another test of his property market
- Capital Economics says commodities are likely to ‘tread water’ as 2023 progresses with stimulus hopes ‘priced in’
- Materials sector falls 0.52%
The latest rally in battery and base metals commodities has died down as concerns about the Chinese real estate sector have reared their head, with troubles at major developed Country Garden threatening the healthy US$100/t mark iron ore has sat above for most of the year.
All this was rough on commodity markets overnight, with gold down 0.6% to US$1892/oz, breaking below the psychological US$1900/oz mark as the market braced for a potentially longer rate hike cycle in the US.
Copper dropped 0.4% to US$8167/t, with nickel remaining below US$20,000/t and zinc also in negative territory.
Country Garden could face default after missing two bond payments last week. That’s not great for Chinese commodity markets, which are heavily dependent on the property sector.
Investors have long hoped for a rally fuelled by Chinese stimulus.
Are they asking for too much?
“Indeed, that is exactly what was suggested at last month’s Politburo meeting. Since then, local governments have been instructed to use their full annual bond issuance quotas after issuance dropped sharply in recent months. Spending funded by special bonds is likely to be funnelled towards infrastructure spending which has, historically, supported industrial metals prices,” Capital Economics commodities economist Kieran Tompkins said in a note.
“However, we suspect expectations for stimulus are largely priced in.
“So while fiscal stimulus might place a floor under industrial metals prices, there doesn’t seem much scope for it to kick-start a fresh rally, particularly at a time when we expect activity in advanced economies to slow. Accordingly, we forecast prices to more-or-less tread water until the end of the year.”
Lithium, gold prices send miners lower
Weakness in base metals prices came as lithium prices also showed signs of heading lower.
The latest price assessment from Benchmark Mineral Intelligence showed carbonate and hydroxide prices in China sliding around 9% each.
Asian spot prices are now at around US$34,500/t.
The update saw a broad sell off in lithium stocks, with Liontown Resources (ASX:LTR) down almost 5% after also announcing a $1 billion contract for Byrnecut to provide underground mining services at its upcoming Kathleen Valley operation and Allkem (ASX:AKE) down over 2%.
Core Lithium (ASX:CXO) shares sunk almost 25% after a heavily discounted $120 million cap raising.
Gold miners didn’t help with Evolution (ASX:EVN) off 4.82% as it revealed a roughly halving of profit and 33% trim to its final dividend on the back of a tough year across its Australian and Canadian precious metals operations.
The materials sector fell 0.52%, taking its month-long losses to 7%. Coal miners Yancoal (ASX:YAL) and Whitehaven (ASX:WHC), the former of which announced a $489 million interim payout overnight, were among the top performing large caps.
WesTrac owner Seven Group Holdings (ASX:SVW) was also up after announcing a 15% lift in EBITDA to $1.689 billion, 18% profit lift to $654m and 23c per share final dividend.
