The upturn is not universal with Australia potentially playing the role of tail-end Charlie in the global fight against inflation with Reserve Bank governor, Michelle Bullock, warning about the growing risk of “homegrown” inflation.
With that cautionary comment came fresh speculation that she is planning a pre-Christmas rate hike, the 14th since the process started last year, with a 15th being loaded into RBA’s bazooka unless the Australian Government gets the message about the damage to the economy from excess spending and rapid pay increases.
“It took only three quarters for inflation to fall from 8% to 5.5% as supply-side issues eased,” Bullock said in Sydney. “But we expect it to take another two years for inflation to fall that much again and move below 3%.”
Meanwhile, the rest of the world, especially China and the U.S., are starting to speed up, with China planning to unleash more property sector stimulus and a key measure of the U.S. stock market, the S&P 500, up 11% over the past four weeks to 4500 and tipped by Bank of America strategists to reach an all-time high of 5000 next year.
China’s recovery from self-inflicted post-Covid malaise can be seen in its demand for steel which, in turn, is being reflected in the iron ore price which hit a 12-month high yesterday of US$137.50 a tonne, taking the increase over the past four weeks to 21%.
Iron ore was ever hotter in Chinese commodity trading, reaching US$141.50/t on the Dalian futures market.
Fortescue Metals Group was the biggest winner from the iron ore bounce, trading up to its own 12-month high of $25.81, a rise over the past month of 21% — exactly the same as the increase in the iron ore it mines.
Despite the exact match between iron ore and Fortescue’s share price, the company itself was in the news for another reason, the budding green hydrogen dream of its irrepressible chairman and founder, Andrew Forrest.
Fortescue’s mid-week annual meeting was a chance for Forrest to rev up his green energy crusade, but to also cop a reminder that he’s not the only shareholder in the company with a bruising vote against the remuneration report, a so-called first strike.
If the green energy projects which have just been approved by the Fortescue board are not firing by this time next year, a second shareholder strike could trigger an election for all board positions, including that of Forrest himself. That would be interesting.
Another hint of future trouble in the drive to become a hydrogen producer came during the week when a rival billionaire in the U.S, Paul Tudor Jones, accused Forrest of unethical conduct (and worse) over a failed deal to buy a property in West Virginia. Forrest dismissed the criticism as a non-event.
Always a divisive company, this week’s meeting and hydrogen announcements did nothing to ease concern among investment banks, with every major bank sticking with a sell recommendation on Fortescue, led by Morgan Stanley which sees the stock falling to $16.45 as risks refuse to fade, potentially dropping the stock by 36%.
Macquarie acknowledged Fortescue’s hydrogen push but said its focus for the next 24-months would remain the Iron Bridge iron ore upgrading project where cost blow-outs and completion delays are a worry.
Goldman Sachs led observations about the broader commodity sector in a report published after its Global Metals and Mining Conference in New York, singling out copper as a commodity likely to be lifted by ongoing supply tightness, with coking coal also on the rise, plus a warning that Brazil could become a bigger lithium producer “than the market anticipates”.
Local lithium stocks had a mixed week, trending up as the price of the battery metal stabilised in China and despite a fresh round of reports that lithium could eventually get squeezed out of the battery sector by sodium-based technology such as that being championed by Sweden’s Northvolt.
But until a new technology emerges, lithium will be the battery metal leader, with news and market moves this week including:
- De Grey, better known as a gold project developer, adding 8c to $1.31 partly on the strength of the latent lithium value in its tenements adjacent to the promising Tabba Tabba discovery of Wildcat Resources, which this week added 4.5c to 85c – after touching an all-time high of $1.01.
- Mineral Resources rose by $2.30 to $64.58 after reporting it had paid just $260 million for the Bald Hill lithium mine which had become trapped in a bankruptcy. Citi revised up its price target for MinRes from $77 to $78.
- Patriot Battery Metals enjoyed a 6c rise to $1.07 after reporting a fresh pegmatite discovery at its Corvette property in Canada.
- NickelSearch reported outcropping pegmatites at its Carlingup property near Ravensthorpe in WA, boosting its share price by 2c to 13c.
- TechGen Metals added 1.7c to 8.8c after raising $2.8 million to accelerate lithium exploration on its tenements in WA’s Ida Valley, and
- Pure Lithium reported high grade lithium from mica samples on its Jarkissle property in Sweden, lifting the stock by 3c to 20c, but after hitting a high of 30c.
Uranium, as mentioned earlier, was a star performer, up 8% over the week to US$80.25 a pound, taking its increase over the past 12-months to 60%.
Local uranium stocks moved up, but not convincingly. Boss added 4c to $4.30. Paladin gained 3.7c to $1 and Peninsula rose by 1c to 9c after announcing plans to raise $60 million to help fund a restart at the Lance mine in Wyoming.
Colin Hamilton, managing director for commodities at BMO, an investment bank, said power station operators were starting to drive the uranium market but there was “very little uncommitted production available.”
Gold hovered around the US$2000/oz mark all week, up around US$20/oz with increasing optimism that conditions next year will drive it higher even if inflation falls.
Rebecca Patterson, a former chief investment strategist at the hedge fund Bridgewater Associates, said three factors could underpin gold in 2024; ongoing central bank buying (especially China), property troubles in China which would encourage investors to buy gold, and an unusually busy political calendar next year.
Local gold moves included OreCorp adding 3c to 50c after negotiating better terms in its merger with Canada’s Silvercorp.
Bellevue Gold added 16c to $1.58 after an upbeat annual meeting. Northern Star slipped 15c to $11.60 and Catalyst Metals added 4c to 82c as interest grows in its Plutonic mine in WA and Henty project in Tasmania.
Other news and market moves in what was an overall flat week included:
- AIC Mines doing best in the copper sector with a rise of 2c to 34c after a resource upgrade at its Eloise mine in Queensland. Shaw and Partners reckon the stock is heading up to 80c. Sandfire and 29Metals went the other way, down 2c and 7c respectively to $6.10 and 51c.
- Viridis Mining reported thick and rich rare earth drill results from its Colossus project in Brazil, driving its share price up by 15c to $1.95. Other rare earth stock weakened, including Lynas, down 2c to $6.74.
- Coal stocks continued to perform well this week. New Hope added 19c to $5.37. Bowen Coking Coal rose by 2c to 12c, and Whitehaven put on 7c to $7.06 while the London hedge fund Bell Rock, which caused problems at the company’s annual meeting, got a slap over the wrist from the Takeover Panel for what were termed “unacceptable circumstances”, and
- Oil stocks, an overlooked sector thanks to the climate change debate, had a good week even as the oil price fell. Strike Energy added 1.5c to 40c. Beach was also up 1.5c to $1.52. Santos gained 8c to $7.04 and Woodside rose by 33c to $31.58.