Iron ore out of the doghouse on China Covid changes and property support

• Iron ore prices surge as China shows signs of relaxing Covid policy and supporting downtrodden property sector
• FMG up ~9%, with big gains for BHP, Rio, MinRes, Champion Iron, Deterra and more
• Big day of news with Ramelius, Leo Lithium and Galena updates among others

Iron ore prices have surged on the back of some early signs of a wind back of China’s regressive Covid containment policies, which have cruelled demand for metals for most of 2022.

Singapore futures are up a party-starting 5% to US$95.85/t at 9am WA time, the exact time each day we take a break west of the Nullarbor to bathe in a rich moisturiser made up entirely of blitzed and reconstituted iron ore royalties.

Iron ore fell to US$77.17/t in the immediate aftermath of the Chinese National Congress, which confirmed its continued adherence to Covid control, a little over a fortnight ago.

Fortescue Metals Group (ASX:FMG) was up 9.12% this morning, with BHP (ASX:BHP) up 5.13% and Rio Tinto (ASX:RIO) lifting 4.86%.

Deterra Royalties (ASX:DRR), which extracts its income via a royalty over BHP’s Mining Area C project in the Pilbara, and high grade Canadian iron ore miner Champion Iron (ASX:CIA) were also big winners, up 4.76% and 11.33% respectively.

Investors in other China demand-linked ASX miners in lithium, mineral sands and copper were similarly bullish. Lithium plays IGO (ASX:IGO), Mineral Resources (ASX:MIN), which mines both the battery metal and iron ore, Pilbara Minerals (ASX:PLS) and Allkem (ASX:AKE) were all up.

Core Lithium (ASX:CXO) gained almost 10%, with Sandfire Resources (ASX:SFR) and Iluka Resources (ASX:ILU) also up more than 5%.

We have two things at play here. One is a so-called “20-point playbook” outlining changes to China’s Covid Zero strategy including relaxed quarantine rules for people entering the Middle Kingdom.

The other is a similarly numerically defined 16-point rescue package for the Chinese housing sector, a downturn in which has been the source of the steel complex’s pain for much of the past year, making up around 30% of downstream steel demand.

“The measures are broad and primarily look to help property developers via easier access to credit and repayment extensions,” Commbank mining expert Vivek Dhar said in a note.

“The package also protects credit scores and loosens down‑payment requirements for homebuyers.

“Extending mortgage repayments have also been encouraged for homebuyers that have had employment impacted by COVID policy.

“It’s no coincidence that a plan to help the property sector has been timed with a plan to relax China’s COVID‑zero policy.”

Credit crunch

With buyers feeling the pinch from their income loss during 2022’s Covid wave, average new home price growth has sagged for 13 straight months.

While iron ore markets are in a good mood today, Dhar says the longer it goes on the longer the recovery will take.

“With homebuyer and creditor confidence so eroded, it’s hard to gauge how quickly China’s property sector can recover, even if China’s COVID‑zero policy has been relaxed.

“We’d likely need to see a more meaningful relaxation of China’s COVID‑zero policy and a greater tolerance to live with COVID‑19 than to eliminate it. We expect those announcements will be made by the end of March next year at the ‘Two Sessions’, when annual growth targets are set for China’s economy in 2023.

“The deeper and longer that the property sector downturn goes, the longer it will take to return back to pre‑COVID settings in our view. China’s property sector accounts for ~30% of China’s steel demand and 20‑30% of China’s aluminium, zinc and copper consumption.”

Much else going on?

Yep. Plenty to keep you busy in the producer/mid cap/large cap space.

In the lithium world, $600 million capped Leo Lithium (ASX:LLL) has appointed Aussie contractor Lycopodium (ASX:LYL) to provide engineering and procurement and project management services for its Goulamina mine in Mali, one of the largest hard rock lithium mines in the world entering construction.

Production is expected in the first half of 2024, with the mine being developed in a 50-50 partnership with Chinese lithium giant Ganfeng.

Ramelius Resources (ASX:RMS) has delivered a three-year production outlook anticipating little production growth over the next few years.

Production is anticipated to rise from 240,000-280,000oz at an AISC of $1750-1950/oz in FY23 to 250,000-290,000oz in each of FY24 and FY25 at falling AISC of $1500-1700/oz and $1400-1600/oz respectively.

A major PFS on the open pit expansion of the Edna May gold mine is still ongoing and remains outside the mine plan, along with the high grade, low cost Hill 50 underground development at Mt Magnet, Eridanus underground and Rebecca projects, picked up in Ramelius’ takeover of Apollo Consolidated last year.

And Galena Mining (ASX:G1A) has hit the first underground ore at the Abra lead and zinc mine in WA, just over a year after blasting the portal at the Mid West mine.

First concentrate production is due in the first quarter of 2023.

The post Ground Breakers: Iron ore out of the doghouse on China Covid changes and property support appeared first on Stockhead.

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