The effects of a slowdown in Chinese manufacturing activity is washing up in commodity prices and on most stock exchanges with the latest development being a slide by the Hong Kong stock market into an official bear market, down 20% from its last peak in January.

For Australia, which is heavily reliant on China’s appetite for key commodities such as iron ore, a potential decline in Chinese demand will put pressure on exporters already battling higher costs.

The latest glimpse of what’s happening on the costs front came in a midweek update from Hastings Technology Metals which revealed an 44% increase in cash cost estimates for its Yangibana rare earth mine in WA in just two years.

That cost surprise has forced Hastings to redesign its project which will now be a two-stage development with the mine and rare earth concentrate stage first and a plant to handle upgrading to follow.

The effect on Hastings was immediate, a 57c (28%) share price fall to $1.46 and a downgrade by Macquarie Bank from buy to neutral. CG Capital Markets retained its speculative buy tip but lowered its price forecast from $4.50 to $3.25.

Hastings will not be alone. The cost squeeze obvious across the Australian economy as interest rates are ratcheted higher, consumer spending slows, and a wave of union-driven wage rises challenge the Reserve Bank to keep rates higher for longer.

A worse-than-expected inflation reading released midweek prompted bank economists to warn that rates could move up faster than previously predicted. ANZ, for example, said it expected “more and earlier” Reserve Bank rate rises.

Overall, the Australian market was not sold down heavily this week, shedding a modest 0.4%  as measured by the all-ordinaries index. The metals index was hit harder, down 2.1%, while the gold index was steady, as was the gold price at US$1964 an ounce.

The outlook is for more choppy trading as investors try to see through the price-depressing effects of the current up-leg in interest rates to a time when normality returns, which is also what Citi attempted mid-week with its latest copper research report.

The bank avoided the “boom” word, but it was embedded in the data which included a forecast 50% increase in the copper price over the next two years with the metal forecast to rise from around US$8000 a tonne to US$12,000/t in 2025.

“Copper’s unique characteristics could see it make oil’s 2008 bull run (from US$90 a barrel to US$140/bbl) look like child’s play, should a bullish cyclical environment materialise at any point over the coming years,” Citi said.

29Metals, which has been buffeted by flooding at its Capricorn mine in Queensland, was the best of the copper stocks this week with a rise of 5c to 70c, though the improvement needs to be measured against a 64% fall since the start of the year when the stock was trading at $1.92.

Sandfire also gained ground, adding 10c to $5.67 thanks to a modest midweek rise in the copper price.

Lithium stocks continued to firm in line with sales of electric vehicles in China. Morgan Stanley said its China research team reported a 10%-20% increase in month-on-month sales by battery makers in May with the potential for a “bullish skew for sales in the second half of the year”.

News and market moves by lithium exposed stocks this week included:

  • Solis Minerals, which is dual listed in Australia and Canada, rocketing 22c (160%) to 37c after announcing the purchase of a lithium project in Brazil (Jaguar) which has revealed spectacular assays from early work including one sample assaying 4.95% lithium.
  • Leo Lithium adding 11c to 86c after reporting a $106 million capital injection by China’s big lithium processor Ganfeng which is keen to source raw material from Leo’s Goulamina project in Mali. Macquarie reckons Leo is heading up to $1.55.
  • Global Lithium said ore sorting trials at its Manna project near Kalgoorlie in WA had delivered a 90% increase in lithium grade, a result which helped lift the stock by 6c to $1.45.
  • Vulcan Energy lost 17c to $3.62 despite announcing a fresh joint venture deal with European car maker Stellantis.
  • Cazaly Resources joined the trek north to Canada with the acquisition of a project in the James Bay area of Quebec but incurred a small share price fall of 0.03c to 3.4c, and
  • Green Technology slipped 1.5c to 72c despite reporting continued high grade lithium results from drilling at its Root Bay project in Ontario with a best new hit of 16.8 metres at 1.57% lithium from a depth of 152.4m.

Iron ore stocks were mixed as the price of the steel making material, which is heavily exposed to the Chinese economy, first rose a few dollars and then sank back to US$100/t.

Multiple factors are weighing on iron ore miners, not least their continued rise in operating costs and concern that China’s new government-controlled monopoly iron ore buying agency is inserting itself into contract negotiations with miners.

UBS, an investment bank, warned that demand for iron ore was “set to soften” as steel demand started to “peak out”.

Fortescue Metals, the leading pure play iron ore producer, rose by a marginal 4.5c during the week to $19.30 while Champion Iron lost 37c to $5.64.

Gold, as mentioned earlier, largely held its ground at US$1964/oz, but moved back over the A$3000/oz mark locally as the Aussie dollar slipped to a six-month low of US64c before recovering to around US65c.

UBS said the high Australian gold price should see improved earnings in the next reporting season with “a rich flow of news and catalysts” expected over the next two-to-three months staring with Evolution’s investor day next week.

Genesis was the winner this week in the battle for St Barbara, rising by 13c to $1.25 as Silver Lake pushed its rival bid to be rewarded with a 1.3c rise to $1.07 while the target, St Barbara, added 1.5c to 55c.

Other gold news and market moves included:

  • Westgold Resources rising by 4c to $1.60 after reporting a possible revival of mining at the Great Fingall project in WA.
  • Gascoyne reporting strong metallurgical test work at its Never Never project, adding 2.3c to 14c, and,
  • Southern Cross Gold falling by 6c to 49c despite a fresh report of high-grade gold from the latest drilling at its Sunday Creek project near Melbourne with a best hit of 10.4m at 22.4 grams of gold a tonne from a depth of 542.2m.

Poseidon was the pick of the thinning ranks to local nickel stocks, rising by 0.7c (18%) to 4.4c as interest grows in the restart of its Black Swan mine in WA. Morgans, a stockbroking firm, reckons Poseidon could rise as high as 10c.

Other news and market moves this week included:

  • Redflow rose by 9c (54% to 26c) after announcing a deal to supply one of its long-life battery storage systems to a client in northern California.
  • Develop reported promising metallurgical test work at its Sulphur Springs zinc and copper project in WA, adding 12c to $3.50.
  • Paladin lost 6c to 60c after media reports of possible increased government participation in its Langer Heinrich uranium mine in Namibia, news which might have helped Australian-based uranium stock Boss add 13c to $2.86.
  • Group 6 Metals announced the production of the first tungsten concentrate from its Dolphin mine on King Island off Tasmania but slipped 0.5c lower to 13c.
  • Black Rock Mining finalised its graphite offtake deal covering the Mahenge project in Tanzania with Korea’s Posco, adding 1c to 14c, and
  • Galileo Mining fell by 10c to 60c despite reporting broad but low-grade mineralisation at its Callisto precious metals project in WA including 54m at 0.76g/t of 3E (palladium, platinum and gold) with useful grades of copper and nickel.