Commodity spotlight: Iron ore steady, oil slides and lithium has more legs to run

Iron ore awaits further catalysts from China

Iron ore prices are pushing three-month highs of US$160 a tonne on Friday.

Although investors should caution the mixed signals from the world's largest iron ore customer - China.

Debt and economic growth at risk

• Several Chinese property developers shares will be suspended in Hong Kong on Friday after failing to release 2021 financial reports by 31 March deadline

  • Includes Shimao Group, Kaisa Group, China Aoyuan, Sunac China, Times China

• China’s manufacturing and services PMI simultaneously fell into contraction in February for the first time since early 2020

  • PMI weakened as several major Chinese cities were locked down due to omicron outbreaks

Government to save the day

• China has vowed to roll out policies to stabilise the economy as soon as possible, according to state media

  • Analysts believe the People’s Bank of China may have to accelerate monetary policy easing as downward pressure in the economy rises, according to Reuters 

• Several Chinese provinces continue to relax home purchase requirements. More than 60 cities have announced easing policies to stabilise the housing sector in 2022

  • More than 30 mainland property developers’ shares jumped by more than 10% on Thursday

Energy: OPEC vs. West

It took OPEC delegates just 12 minutes at Thursday's talks to conclude that the petroleum organisation will stick to its original plan of gradually raising output.

OPEC has ignored repeated from US President Joe Biden and the International Energy Agency (IEA) to raise output as fuel prices and inflation surge.

In an attempt to shield consumers from elevated prices, Biden authorised the release of 180m barrels of oil of strategic reserves over a 6-month period.

The release of strategic reserves as well as growth concerns from China has helped push Brent crude oil prices below US$110 a barrel.

Brent crude oil (Source: TradingView)

Looking towards the medium-term, Goldman Sachs believes the pivot away from Russian oil and gas will take time.

"This is a situation where we think this high-price environment is unlikely to go away anytime soon," said Goldman Sachs Research's Samantha Dart.

To meet the world's rising energy needs, Goldman forecasts capital expenditures to rise drastically in the short-term. Capex in primary energy (hydrocarbon, nuclear and renewable power) is expected to grow 60% by 2025.

Lithium is the 'powerhouse of the cell'

Allkem provided a short but sweet update on expected June quarter pricing for lithium carbonate and spodumene products - and boy did it send shockwaves across the sector.

Allkem said that preliminary March quarter sales for lithium carbonate was approximately US$27,236/t free-on-board and prices received in the June quarter to be approximately US$35,000. 

Similarly, spodumene prices in the March quarter were around US$2,218/t and advanced discussions for pricing in the June quarter were approximately US$5,000/t. 

To add some more perspective, Pilbara Minerals (ASX: PLS) achieved an average realised price of around US$1,250.

Interestingly, a lithium and rare earths note from Macquarie on 4 March was expecting spodumene prices to peak at US$4,000 a tonne.

It looks like Macquarie analyst might have to go back and rejig their models and price targets in response to even higher-than-expected prices.