Monsters of Rock: Commodity prices wobble and iron ore trips below US$100/t on China worries

Chinese Covid lockdowns continue to drive volatility for base metals and iron ore, as the price of Australia’s headline commodity drops below US$100/t
Materials sector dips as major miners fall
African goldie Perseus delivers record profit

Wash, rinse, repeat.

China’s so-2020 approach to Covid-19 is doing little for anyone in 2022, not the least the global commodity markets the manufacturing giant supports.

Property is in the potty in the Middle Kingdom, owing much to China’s vicious cycle of lockdowns to contain its Covid outbreaks and restless populace.

PMIs today showed China’s economic activity continues to contract, though much less than analysts thought, hitting 49.4, up from 49.0 in July and above Bloomberg consensus of 49.2.

But even a hit on forecasts is a contraction in the real world. Anything less than 50 means activity in China’s economy is going backwards.

It came after Baoshan Iron and Steel, a partner in a new $3 billion iron ore mine Mineral Resources (ASX:MIN) is developing in the Pilbara, said it was facing “severe challenges” on the home front with demand for steel waning from the property crunch.

Iron ore prices dropped below US$100/t yesterday for the first time in five weeks, while base metals fell hard overnight as the LME emerged from a public holiday.

Copper dropped 3.6% to US$7864/t, nickel fell 1.2% to US$21,369/t, zinc was off 2.3% to US$3482/t and aluminium was down 4.1% to US$2391/t, while gold fluttered around the US$1725/oz mark.

Commbank mining analyst Vivek Dhar says hard commodities are especially vulnerable to Chinese demand, with our largest trade partner responsible for 40-60% of industrial metal demand and 70% of iron ore imports.

“We believe China’s COVID zero policy is at the heart of the downturn in China’s property sector, as uncertain household and business income weighs on new home prices and further deteriorates credit conditions for property developers,” he said.

“Concerns that property developers will not be able to deliver projects under construction have underpinned the recent wave of mortgage boycotts.

“China’s property sector accounts for ~30% of China’s steel demand and 20‑30% of China’s copper, aluminium and zinc consumption. It’s worth highlighting that iron ore prices fell to the lowest level since 21 July.”

How did the ASX miners respond?

With an eerie calm across much of the materials sector.

But any gains felt elsewhere were easily cancelled out by iron ore behemoths BHP (ASX:BHP), Rio Tinto (ASX:RIO) and Fortescue Metals Group (ASX:FMG), down 2.71%, 0.94% and 2.27% respectively.

Lower nickel prices hurt Nickel Industries (ASX:NIC) as well, despite the company posting a 43% lift in half year profit to US$118.4m and interim dividend of 2c a share ($54.6m).

The materials sector was down 1.44% just before 4pm AEST, with energy stocks down almost 3%.

But battery and EV metals stocks were strong, with Lynas (ASX:LYC) and Sayona (ASX:SYA) among the stronger performers and De Grey Mining (ASX:DEG) defying malaise in the broader gold sector to rise 7.65%.

Monstars share prices today:

Record profit for Perseus

There’s no doubt gold mining is getting harder as mines age and inflation bites.

But it doesn’t have to be that way for all.

One that has established itself as an understated market darling is Perseus Mining (ASX:PRU), up 377% over the past five years amid a procession of strong results over recent years.

The West African gold miner delivered a record $279.9m profit for FY22, 101% higher than FY21, with revenue up 66% to $1.126 billion and EBITDA 86% higher at $564.1m.

That bankrolled a 1.64c per share dividend, including a bonus dividend of 0.79c after record gold production of 494,014oz at US$952/oz all in site costs.

Perseus expects to produce 492,850-517,850oz in 2022 at US$980-1025/oz, with its recent acquisition of Orca Gold opening a new development front diversified from West Africa at the Block 14 gold project in Sudan.