Monsters of Rock: Will the Year of the Rabbit be a prosperous one for miners?

Fitch calls Year of the Rabbit as a prosperous one for miners in expectation of China’s reopening
Materials stocks up 1.42%, taking five day gain to 6.75%
Pilbara Minerals, Fortescue and Lynas among top performers

2023 has opened on a high in the materials sector, up 1.42% again today to bring its five day gain to 6.75%.

It is a strong start for the sector, buoyed by hopes China’s Covid outbreaks could peak early leading to an industrial fightback for the key economic powerhouse.

“Overall, we believe the metals & mining sector will prosper as we head into the Year of the Rabbit, benefiting from the China reopening story. China will help offset weaker growth in the US and EU,” analysts from Fitch, who also predicted a strong year for copper, said.

Fitch sees tailwinds for iron ore, Australia’s largest export commodity, but says coal prices could see a pullback after a “banner year” in 2022.

“We are cautiously optimistic on iron ore prices, while we see downside risk to coal prices as we head into 2023. For iron ore, China is the major driver for prices since more than 2/3 of the seaborne demand is derived from the country,” the ratings agency said.

“As we discussed earlier, we are cautiously optimistic about China given Beijing’s
pivot away from its zero COVID policies and supportive macro policies. As such, we expect the China reopening story to support Chinese steel output and therefore iron ore demand and prices.

“That said, China plans to consolidate iron ore purchases under a state-owned entity, and we’ll see if the customer concentration will weigh on prices moving forward.”

Morgan Stanley has also taken a bullish outlook on iron ore, with a US$140/t price target for the second quarter of 2022.

However, the US investment bank thinks price volatility will be less pronounced with the introduction of the China Mineral Resource Group, which plans to consolidate price negotiations with Australian and Brazilian miners for State owned mills like Baowu.

Iron ore is trading around US$122/t, +50% up from October’s multi-year lows of under US$80/t.

Movers and shakers across the sectors

Like the great AFL midfields of the last 20 years (Brisbane ’01-’03, West Coast ’05-06, Geelong ’07-’11, Melbourne ’21 etc.) prime movers can be found all over the resources space today.

Pilbara Minerals (ASX:PLS) led the market with a 4.15% gain while iron ore miner Fortescue Metals Group (ASX:FMG) did some heavy lifting with a 2.56% gain pulling its market cap over $70 billion.

Also in fine form were lithium miners Liontown Resources (ASX:LTR) and Allkem (ASX:AKE) and rare earths producer Lynas (ASX:LYC) and gold producer West African Resources (ASX:WAF).

Further down, $675 million capped Adriatic Metals (ASX:ADT), owner of the Vares silver project in Bosnia and Herzegovina was up more than 4% after hitting high grade silver, lead, zinc and gold at its Rupice Northwest target, including a best strike of 45.90m at 701g/t AgEq, 22.50% ZnEq (102.0 g/t Ag, 9.50% Zn, 5.90% Pb, 1.00 g/t Au, 0.60%
Cu, 53.0% BaSO4, 0.10% Sb) from 216.10m.

The black mark was the coal sector which has seen prices fall in recent days amid lower demand due to a warmer than expected northern winter. All the major players, including New Hope (ASX:NHC), Whitehaven (ASX:WHC) and Yancoal (ASX:YAL) were lower.