Markets Overview
- ASX SPI 200 futures down 0.3% to 7,619.00
- Dow Average down 1.0% to 38,085.80
- Aussie up 0.3% to 0.6518 per US$
- US 10-year yield rose 6.2bps to 4.7039%
- Australia 3-year bond yield little changed at 4.04%
- Australia 10-year bond yield little changed at 4.41%
- Gold spot up 0.7% to $2,332.05
- Brent futures up 1.4% to $89.24/bbl
Economic Events
- 10:00: (AU) Bloomberg April Australia Economic Survey (Table)
- 11:30: (AU) 1Q Export Price Index QoQ, est. -0.6%, prior 5.6%
- 11:30: (AU) 1Q Import Price Index QoQ, est. 0.1%, prior 1.1%
- 11:30: (AU) 1Q PPI QoQ, prior 0.9%
- 11:30: (AU) 1Q PPI YoY, prior 4.1%
he world’s largest technology companies soared in late trading as stellar results from Microsoft Corp. and Google’s parent Alphabet Inc. fueled confidence in Wall Street’s most-influential group.
A $250 billion exchange-traded fund tracking the Nasdaq 100 (ticker: QQQ) climbed 1.2% after the close of regular trading. In a sigh of relief to investors worried about lofty valuations of the sector that has powered the bull market, Alphabet crushed sales estimates and announced a dividend. Its fellow megacap Microsoft also beat forecasts, lifted by corporate demand for the software maker’s cloud and artificial-intelligence offerings.
The late rebound came after the market got rattled by data that showed exactly what investors did not want to hear — a sharp US economic slowdown and stubborn inflation. Gross domestic product increased at a 1.6% annualized rate, trailing all forecasts. A closely watched measure of underlying inflation advanced at a greater-than-expected 3.7% clip.
Meantime, Treasuries sold off, with yields hitting fresh 2024 highs as the latest economic figures revived the “stagflation” chatter — bringing more uncertainty to the path of Federal Reserve policy. Swap traders pushed back the timing of the first rate cut to December.
Other News
Against the arid, red dirt of the Australian Outback, the Mount Holland lithium mine emerges to approaching visitors as a colossal grey-tinged crater, with trucks the size of houses edging along its steep inclines.
An expanding site at the heart of the world’s top lithium-producing region, the A$2.6 billion ($1.7 billion) operation is emblematic of the plentiful additional supply of the battery material currently weighing on global prices, much of it from this neighborhood. Despite bullish long term forecasts, the metal has been languishing near two-year lows as demand fails to keep pace.
But the sprawling mine is also a glimpse of the future for Western Australia, or of what this vast region, defined for decades by the demands of China’s steel industry, hopes will be a new, greener stage of development. The battery ingredient still makes up a sliver of exports but its prospects have already attracted attention — and billions of dollars of investment — from some of the region’s biggest and brashest mining names, from Gina Rinehart to Chris Ellison’s Mineral Resources Ltd.
Owned by mining giant Sociedad Química y Minera de Chile and Australian conglomerate Wesfarmers Ltd., Mount Holland is one of the largest operations set up in Western Australia over recent years. A processing plant opened last month and a refinery will follow next year, eventually producing enough lithium hydroxide to power close to one million new electric vehicles every year for half a century.
The catch is that the plant’s backers are expanding into a glut that has already forced some to hit the pause button, and risk extending a downturn that has battered the industry.
In part, that’s an expression of confidence in an eventual recovery in demand. It’s also a bet on the role resource-rich Western Australia will play, not only in mining, but in efforts down the supply chain to counter Beijing’s near-monopoly in processing as the capacity to refine lithium-bearing spodumene into lithium chemicals needed in batteries expands.
The International Energy Agency forecasts lithium demand will increase forty-fold from 2020-2021 levels over the next decade and a half, thanks to battery and electric-vehicle demand alone, requiring dozens of extra Mount Hollands.
“It was an adventure for us at the beginning, but now it is the future,” Ricardo Ramos, chief executive officer of SQM, the world’s second-largest lithium producer. SQM gets most of its production from Chile, but its extraction contract there expires in 2030, leaving the future uncertain.
“I would love to have ten more Mount Hollands in Australia as we speak today — one is not enough,” Ramos said.
Chile has by far the world’s most expansive natural endowment, with its mineral-rich salt flats. But outside Latin America’s Lithium Triangle, which also includes Argentina and Bolivia, it’s Australia that has the world’s most significant reserves of the metal, a vital component for the rechargeable batteries at the heart of the electric revolution.
The ability to extract lithium swiftly from hard rock resources, plus existing infrastructure, means it has already seen something of a development boom. In 2016, there was one producing lithium mine in Western Australia. Today, there are seven. A country that accounted for roughly a sixth of supply in 2000 now makes up almost half of global mined production, close to double Chile’s output — significant even if China still dominates refining capacity.
In the context of a mining history that dates back close to two centuries, the enthusiasm for the ultra-light metal here is relatively new. Until recently, Western Australia’s heftiest investments were focused on bigger earners, like iron ore, the ingredient that underpins the world’s largest miners. Lithium was used to treat bipolar disorder and even harden glass for perfume bottles.
“It used to be so difficult to get a sale that we had a bell in the office. We used to ring the bell when we’d secure a sale and the whole
office would cheer,” Dale Henderson, CEO of lithium producer Pilbara Minerals Ltd, said.
“We’d ring the site and say ‘turn the plant back on, we’ve got a sale’. That was only a few short years ago.”
Like others here, Henderson sees the hesitation among investors and some developers. But he argues that the relative youth of the lithium market means last year’s price plunge and flattening electric-vehicle demand should be seen as growing pains.
Certainly the billionaires who made fortunes in iron ore and need a new bet for the future have also continued to pile into the metals of the energy transition. Rinehart’s major known lithium investments alone, with her company Hancock Prospecting, are worth close to $1 billion at current market prices — before adding copper, rare earths and more.
Still, the question is whether veteran producers, tycoons and indeed Western Australia can parlay previous experience in bulk materials into the ability to mine, process and move down the battery supply chain, making the most of free-trade agreements with the US and other markets to provide the country’s economy with another leg of growth.
All while getting around major hurdles, including a higher carbon footprint than producers like Chile, given the energy intensity of hard-rock processing, and technical challenges around the production of lithium hydroxide that have hampered even heavyweight Albemarle Corp, hit by post-pandemic delays and cost increases. Australia’s first lithium refinery at Kwinana, a joint venture between Tianqi Lithium Corp. and IGO Ltd., began production in 2021 and has since struggled to achieve expected output volumes, while plans for expansion were put on hold.
From the very earliest days, mining has been woven into the fabric of Western Australia, a region roughly the size of Western Europe with a population half that of tiny Singapore. The industry dates back to a gold rush in the 19th century, but it was China’s economic awakening that created a steel and iron ore boom so expansive that it helped the country’s economy to sidestep the global financial crisis and cushion the impact of the pandemic.
China’s appetite for vast construction projects is now cooling, steel producers are under pressure to clean up a sector that accounts for at least 7% of global greenhouse gas emissions and earnings from Australia’s iron ore are expected to fall — from A$136 billion this fiscal year to just A$83 billion by 2028-29, according to government forecasts.
Lithium is not going to fill that gap anytime soon. Even in 2028-29, exports are forecast at just over A$9 billion.
(Bloomberg)
