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Mining
Are you familiar with the concept of the Monkey’s Wedding?
Taken from the Zulu phrase umshado wezinkawu, South African folk use the term to refer to that strange but not uncommon phenomenon when rain falls on a sunny day.
Given the positive sentiment that has sent prices in the direction of US$160/t this year (nearly double November’s 12 month lows of US$87/t) it wouldn’t be a stretch to say the market has a pretty sunny view on Australia’s favourite bulk commodity, iron ore.
But like the Monkey’s Wedding, storm clouds in the iron ore and steel game are always gathering in the background.
The latest manufacturing numbers out of the Middle Kingdom, producer of ~60% of the world’s steel and buyer of ~80% of Australia’s iron ore were not great, reflecting the impact of Covid lockdowns which have now spread to the steel city of Tangshan and the commercial capital Shanghai.
China’s official Manufacturing PMI showed activity was contracting at an index level of 49.5 versus consensus of 49.8, while the non-manufacturing PMI was 48.4 against a consensus of 50.3.
Steel PMIs, specific to the iron ore space, have dipped, with output falling from 53.4 in January and 49.2 in Feb to 45.4 in March and new order slipping from 43.2 in February to 39.3 in March.
RBC Capital Markets analyst Tyler Broda says the risk of a “roll over” in iron ore prices in the second quarter is increasing, with falling steel rebar margins putting pressure on the commodity despite Chinese Government calls for stimulus to reenergise its economy and meet official growth targets.
“Iron ore has been stronger than expected in Q1 with prices averaging $141/t vs. our $130/t forecast, but with prices now at ~$160/t and successful stimulus needed to support prices, we are seeing increasing risk around a roll over in Q2 (RBCe $115/t),” Broda said.
That could coincide with recovering iron ore production, given shipping data has shown the performance of the major Australian and Brazilian miners has been weak so far this year.
“Longer-term we continue to expect that iron ore is moving into a structural surplus, and depending on the availability of Ukrainian production (which continues to ship) the crossover could come as early as the end of Q2,” Broda said.
Food for thought for the iron ore miners. Broda says RBC has a preference for the more diversified New York-listed Vale and BHP (ASX:BHP) over Rio Tinto (ASX:RIO) and Fortescue Metals Group (ASX:FMG).
Whitehaven Coal (ASX:WHC) investors have had plenty to smile about lately amid sky high prices for thermal coal.
While they have pulled back in recent weeks from the freakish levels of around US$440/t Newcastle coal hit immediately after Russia’s invasion of Ukraine, at around US$260/t they remain around levels that would have been all time highs late last year.
More joy today for shareholders after the Independent Planning Commission in New South Wales approved the Narrabri Stage 3 expansion project. It will see the mine’s underground life extended from 2031 to 2044.
The mine has faced scrutiny from green groups and local farmers for its potential to add to greenhouse gas emissions and predictions the methane emissions from the mine will increase beyond 2030.
In a statement on the approval the IPC said it “took into account the NSW Government’s policies on mining and emissions reductions. It also acknowledged objectors’ concerns – particularly about greenhouse gas emissions, including the increased methane that is predicted to be released beyond 2030.”
The development consent includes a requirement that Whitehaven take feasible steps to reduce the emissions intensity of the Narrabri mine, with performance measures to keep greenhouse gas emission to less than 0.218t of CO2 equivalent per tonne a year, and minimise scope 2 emissions by considering green energy and renewables in its power supply.
Mining
Mining
Mining
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