China delivers sweet and sour news with hopes for end to trade spat amid more poor economic data

Wars in Ukraine and Gaza understandably dominate international news flow but the shift in China could prove to be a more important economic event as the government there hits the trade relations panic button.

A whiff of what that means could be seen in a higher price for iron ore, Australia’s most valuable export, which goes mainly to China.

At its latest US$127 a tonne, iron ore is at an eight-month high, lifting all producers, including FMG, which added 17c to $23.36, just short of its peak for the year, and emerging small producers, such as CZR, which rose by 3.5c (18%) to 20c.

If China has seen the error of its ways and if interest rates are at a peak, then next year is shaping as a promising time for investors and while proof of both events is required, the visit to China by Australian Prime Minister Anthony Albanese was a positive start to a new relationship, as was news that China is keen to end its trade and diplomatic spat with the U.S.

The first ever outflow of foreign direct investment (FDI) from China in the September quarter was a powerful wake-up call that the aggressive treatment of trade partners and investors had damaged the Chinese economy, which is reported to have slipped back into the destructive process of deflation.

Other signs this week of improving China relations which will bolster demand for most Australian commodity exports include a high-powered economic conference in Hong Kong attended by the world’s top bankers, including the heads of Goldman Sachs, Morgan Stanley and Citi.

The net result was a rise this week of 1% in the ASX all-ordinaries’ index and a 0.5% increase in the metals and mining index. Gold was the odd man out with a 2.5% fall in the index.

A well-telegraphed mid-week increase of 0.25% in official government interest rates dampened activity in some market segments, especially retail, but the impact of the rate rise was short-lived, even with speculation of another increase before Christmas.

Highly indebted households might be suffering from the higher interest rates, but investors are starting to look through the rates issue to see a brighter New Year.

A sign of what might be to come was a rally in British Government debt (so-called Gilts) which saw a mid-week drop in interest rates followed by comments from the Bank of England chief economist, Huw Pill, that New Year rate cuts were being considered.

Another item of international news which could have an effect at the small end of the Australian mining sector was the renewed buying of small mining stocks by the world’s biggest fund manager, BlackRock.

Co-managed by high-profile investor Evy Hambro, BlackRock’s natural resources arm has been sitting on the sidelines for the past two years but has now started building positions in small-cap miners such as SolGold.

Lithium, as it has been all year, dominated mining sector activity this week though most share price moves were modest and there was a clear division between producers (down) and explorers (up).

The outlook for the key battery metal was the subject of a research note from Morgan Stanley based on a meeting with Annie Liu, a former car industry manager who said the price of lithium had to stay down for car makers to breakeven.

Other points by the former Ford and Tesla executive included a forecast of ongoing tough conditions for electric vehicle makers, improving battery efficiency, an uncertain outlook for solid state batteries, and a surplus of at least six-months supply of EV raw material inventories.

Those comments played into a 20c fall over the week by Allkem to $9.47, a 3c fall by Pilbara Minerals to $3.78, a 6.5c fall by Liontown to $1.59, and a US$1.99 fall by Albemarle in New York to US$119.

It was a different story among explorers, with news and share price moves that included:

• James Bay Minerals, up 1.5c to 32c after reporting an increase in size of its La Grande project in the James Bay region of Canada.
• First Lithium, up 4.5c to 41c after reporting the intersection of 53.25 metre pegmatite during drilling at it Blakala project in Mali.
• Lithium Plus, up 1.5c to 54c after announcing a successful $8 million capital raising for work at its Bynoe project in the Northern Territory.
• Delta Lithium, up 1c to 57c after the company received government approval to start mining at the Mt Ida project in WA. CG Capital Markets is sticking with a price target for Delta of $1.20.
• Raiden Resources, up 1.3c (35%) to 5c after reporting high grade samples up to 3.8% lithium from its Andover South project ion WA, and
• Krakatoa Resources, up 2.4c (82%) to 5.3c after reporting high grade samples of up to 4.3% lithium from drilling at the King Tamba project in WA.

Uranium stocks, another of the hot sectors for the past 12-months, cooled appreciably as the price of the nuclear fuel eased back to US$73.50 a pound and despite jitters in the U.S. that it remains dangerously reliant on Russian supply for its reactor fleet.

“It’s really critical that we get off our dependence, especially from Russia,” Kathryn Huff, a senior U.S. Government official said in London.

Australian uranium stocks had a mixed week, led by 92Energy which added 5c to 40c after reporting a parallel zone of mineralisation at its Gemini project in Canada, while Devex added 0.5c to 27c after reporting significant intercepts at its U40 prospect in the Northern Territory.

Most other uranium stocks lost ground. Boss was down 48c to $4.13. Paladin lost 10c to 94 and Deep Yellow dropped by 25c to $1.12.

Rare earth stocks reclaimed investor interest following a period on the sidelines led by OD6 Metals which added 4c to 22c after reporting encouraging assays from drilling at its Splinter Rock clay hosted project near Esperance on WA’s south coast.

Alvo Minerals was another rare earth player to gain ground with a rise of 5c to 28c after reporting thick zones of encouraging rare earth elements in saprolite clays at its Bluebush project in Brazil.

Gold stocks had a mixed week as the price of the precious metal eased back by US$44 an ounce to US$1949/oz, a fall ignored by local leaders such as Northern Star which added 29c to $11.87 and Evolution which rose by 12c to $3.62.

Other news and market moves of interest this week included:

• WA1 Resources continuing its remarkable run as interest builds in its niobium discovery in central Australia with another $1.07 added this week to take the stock over the $10 mark, closing yesterday (Thursday) at $10.40. The stock was trading at $1.50 at the start of the year.
• Chalice Mining slipped 17c lower to $1.76 despite releasing an upbeat report into processing ore from its Gonneville polymetallic discovery in WA. Macquarie Bank sees a recovery to $3.10.
• Buxton Resources lost 3c to 21c despite reporting encouraging nickel, copper and cobalt assays from drilling at the Dogleg prospect in WA it is exploring with IGO. Best hit was a 13.85m zone from a depth of 177.34m grading 4.35% nickel, 0.34% copper and 0.15% cobalt.
• EQ Resources eased back by 0.5c to 6.6c despite reporting the restart of mining at its Mt Carbine tungsten project in Queensland. Morgans sees 13c as the price target, and
• Talga lost 2.5c to $1.06 after announcing a $15 million fund raising to help fund its Vittangi graphite project in the north of Sweden.