Evening Wrap: ASX 200 flat, BHP weighed down by China's iron ore plans, Tesla shares dip on earnings

The ASX 200 felt rather heavy but gains from the Big Four banks helped the index close around breakeven. China's looking to strengthen its iron ore production, Tesla shares fall in after hours trade amid mixed earnings, the copper shortage intensifies as Rio Tinto and 29Metals downgrade production and a few Macquarie notes of interest.

Let's dive in.

ASX 200 Session Chart

Another uneventful day for the ASX 200 (Source: Market Index)

Markets

Another uneventful day for the ASX 200. An optimist might say that the market is holding up relatively well despite all the bearishness. While the pessimist might say its struggling to push any higher and starting to stall. US earnings season remains the key catalyst for markets and tonight we're watching results from Tesla (shares down around 6% in after hours), IBM, American Express and AT&T.

• Materials sold off after China's NDRC said it will adopt measures to secure iron ore supply, strength market supervision and curb the 'unreasonable rise in prices'

  • Mineral Resources (-5.5%), BHP (-2.6%) and Rio Tinto (-2.3%)

• Financials led to the upside, with the Big Four Banks all up at least 1%

• Discretionary stocks bounced after the Index fell 1.5% in the previous two sessions

Economy

Japan's trade deficit eased to 754.7bn yen in March from 898.1bn in February.

• March exports rose 4.3% year-on-year, slowing from 6.5% in the previous month

• Import growth outpaced exports in March due weaker-than-expected Chinese consumption and costs of importing coal, crude and oil products

German producer prices fell 2.6% month-on-month in March.

• Beat analyst expectations of a 0.5% fall

• Despite the fall, producer prices are still up 7.5% compared to March 2022.

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Market Insights

Let's talk copper

Copper LME levels are reaching the lowest levels in 18 years. At the same time, we're seeing two massive copper deals unfold with BHP set to take over Oz Minerals and Glencore trying to will Teck Resources with an improved US$23bn offer.

Rio Tinto also posted its first quarter 2023 production figures on Thursday, which included a substantial downgrade to full year copper output from 650-710kt to 590-640kt.

Then there's 29Metals, that announced major disruptions at its Capricorn Project. It's not expected to return to capacity until the first half of 2024.

Source: Bloomberg

This makes copper sound pretty bullish eh? Well its easier said than done.

There's very limited copper exposure on the ASX. Large cap names are dwindling without Oz Minerals. There's only really 29Metals and Sandfire Resources. Alternatively, the Global X Copper Miners (ASX: WIRE) is a potential alternative.

From a fundamental perspective, several producers and developers are struggling to deliver on production guidances and positive cashflow. You can read more about the cash flow headwind in my copper deep dive here.

Then there's spot prices. Copper is up around 5.9% year-to-date but down -13.6% in the past year. Without the production headwinds and tight inventories, would copper be a lot lower than where it is right now?

Copper prices (Source: TradingView)

Interesting news and movers

Trading higher

• +24.0% Silk Laser Australia (SLA) – Takeover

• +14.3% Aurelia Metals (AMI) – Q3 production

• +10.0% Jervois (JRV) – Drilling update

• +2.0% Starpharma (SPL) – AZD0466 results

• +2.0% Michael Hill (MHJ) – Acquires Bevilles

• +1.9% Zip (ZIP) – Earnings

• +1.1% Bank of Queensland (BOQ) – Earnings

• +0.0% Brambles (BXB) – Earnings

Trading lower

• -11.1% 29Metals (29M) – Capricorn weather event update 

• -9.2% EML Payments (EML) – Pullback after +42% in last three

• -2.6% Redbubble (RBL) – Trading update

• -2.3% Rio Tinto (RIO) – Q1 production

• Lithium sector move: Argosy (-6.7%), Allkem (-5.2%), Pilbara Minerals (-4.9%), Winsome Resources (-4.7%), Core Lithium (-3.5%)

Broker updates

A few Macquarie notes of interest:

Air New Zealand (AIZ): Outperform with 90 cent (NZD) target

• "Additional United services fall under the revenue share partnership with AIR, and AIR + United still have 81% of mainland US seat capacity."

• "Operating stats for January and February have remained strong for AIR, and March is due shortly, while continuing a strong RASK trend could see upside risk to earnings within or above AIR’s current guidance."

Jervois Global (JRV): Neutral with 9 cent target

• "The Mineral Resource update at ICO was incrementally positive with contained cobalt increasing by 9%."

• "Importantly, the ICO resource remains open at depth and along strike."

• "JRV has indicated that it expects to receive US$15m from the US Department of Defense (DOD) which should allow it to continue drilling and assess construction of a US cobalt refinery."

Perseus Mining (PRU): Outperform with $2.80 target

• "PRU’s 3QFY23 operational performance was strong with both production and AISC better than our estimates."

• "Edikan and Yaouré were strong while trucking delays from the satellite mine seen at Sissingué in 3QFY23 have since been rectified."

• "Cash generation was softer than we expected primarily driven by a higher-than-expected tax payment and capex."

Scans