Evening Wrap: ASX 200 climbs as iron ore and energy stocks rally + Leo Lithium's crash

The S&P/ASX 200 closed 41 points higher, up 0.56%. 

The Resource sector helped lift the ASX 200 into positive territory, Liontown shares rally 9% as Albemarle bumps its takeover bid to $3.00 per share, Leo Lithium shares crash after the Mali government halts shipment plans, uranium stocks are on the move and Morgan Stanley's take on iron ore.

Let's dive in.

ASX 200 Session Chart

ASX 200 higher but closed off session highs (Source: Market Index)

Markets

The ASX 200 finished higher but off best levels of 0.86%. Most of Monday's gains were concentrated towards the Resource sector, led by names such as Liontown Resources (+8.8%), Paladin Energy (+6.9%), South32 (+3.8%), BHP (+2.7%) and Rio Tinto (+2.5%). Commodity prices are beginning to poke near-term highs including:

• Copper is trading around a 1-month high of US$3.85

• Singapore iron ore futures trading near 6-week highs of US$115

• Gold around a 6-week high of US$1,945

• WTI crude hit a 10-month high of US$85.5

• Uranium at levels not seen since April 2022 of US$58.5

Despite the Resource sector pulling ahead, most sectors were red. Defensives such as Staples, Utilities and Healthcare led to the downside.

Economy

Australian household spending fell 0.7% year-on-year in July, according to the ABS.

• “This is the first time since February 2021 that the spending indicator has fallen.” – Robert Ewing, ABS Head of Business Statistics

• “Spending on discretionary goods and services was down for the fourth straight month. It fell 3.3% over the year, as households adapt to cost of living pressures.”

• “Non-discretionary spending rose 1.7%, which is the lowest growth rate since early 2021.”

• “The overall fall in household spending compared to July last year was driven by Furnishings and household equipment (-7.9%), Clothing and footwear (-7.5%), and Recreation and culture (-3.9%).”

Latest news

Leo Lithium: The Risks of Investing in Africa

Leo Lithium (ASX: LLL) halved on Monday after the company's shares exited a 7-week long suspension. In summary:

• Direct shipping ore operations (DSO) banned

• Leo Lithium was expected to begin DSO sales in the second half of 2023 – This guidance has been withdrawn

• US$45-50 million unplanned import duties and taxes

• Uncertainty around government free carry position (minimum required amount is 10% of the joint venture, up to 20%)

It's a bit of a full circle experience for Leo Lithium shares, which rallied from the 40 cent level in March to a peak of $1.28 in mid-July and now back to 56 cents.

Leo Lithium 6-month price chart (Source: Market Index)

This serves as a a reminder about:

• Sovereign risk

• Why Africa-based lithium miners (and projects in general) tend to trade a substantial discount to peers

Uranium: Is it time?

Uranium stocks are finally moving out with a bit more conviction (if you've been watching the sector for a while, you'll know that it's prone to fake breakouts and whipsaw action).

Uranium spot prices hit US$58.5/lb, up for a seventh straight week to levels not seen since April 2022. The strength was further bolstered by the world's largest uranium producer Cameco, downgrading its 2023 production forecast from 18 million pounds to 16.3 million pounds.

A few charts of interest from majors Paladin and Boss Energy.

Paladin Energy weekly price chart (Source: TradingView)

Boss Energy weekly price chart (Source: TradingView)

Interesting news and movers

Trading higher

• +12.3% Arafura Rare Earths (ARU)

• +9.6% Cettire (CTT)

• +9.4% Weebit Nano (WBT) – To join ASX 200

• +8.95% Judo Capital (JDO)

• +8.8% Liontown (LTR) – Revised offer from Albemarle

• +8.8% Talga Group (TLG)

• +6.7% Hastings Tech (HAS)

• +4.0% Genesis Minerals (GMD) – To join ASX 200

• +2.1% Vulcan Steel (VSL) – To join ASX 300

• Uranium sector move: Bannerman Energy (+11.1%), Aura Energy (+10.7%), Boss Energy (+9.2%), Elevate Uranium (+9.1%), Alligator Energy (+8.5%)

• Iron ore sector move: BHP (+2.7%), Rio Tinto (+2.5%), Champion Iron (+2.3%), Mount Gibson Iron (+1.2%)

• Coal sector move: Terracom (+5.9%), Stanmore (+3.0%)

Trading lower

• -50.9% Leo Lithium (LLL) – Mali government suspends DSO operations

• -21.1% SomnoMed (SOM) – Placement

• -7.0% Lake Resources (LKE)

• -6.9% Australian Agriculture Co (AAC) – To be removed from ASX 200

• -3.0% Flight Centre (FLT)

• -2.9% Qantas (QAN) – Responds to ACCC proceedings

• -1.0% Sandfire Resources (SFR) – Downgraded by Cannacord

Broker notes

Morgan Stanley's take on iron ore:

• “Iron ore's fundamentals have surprised to the upside, with China's more resilient steel output and very low port inventories.”

• “On top, if steel cuts do come through, our analysis suggests it's China's domestic iron ore output that will act as the marginal tonne, raising cost support accordingly.”

• “Iron ore sentiment (and price) would likely still take a hit if more concrete announcements of steel cuts do come through, and if domestic iron ore production stays resilient, port inventories would rise.”

• “However, our current $90/t target (4Q23) may be overcautious, with upside risks from here if cuts do not materialise.”

Macquarie’s take on tech and telcos:

• “FY23 resulted in more beats than misses at the EBITDA level due to Telstra and TPG.”

• “TPG. FY24 was softer than expected with varied reasons including: i) macro-driven revenue headwinds (WTC/NEC); ii) cost management better than expected (REA/ CAR).”

• "Those who were able to continually grow their top lines were rewarded (ALU; MP1; IEL; AD8; TPG).”

• “Key Outperforms: TLS, CAR, SEK, NXT.”

Scans