Evening Wrap: ASX 200 flat, lithium stocks smashed + Woodside closes at a fresh all-time high

The S&P/ASX 200 closed 8 points lower, down -0.10%. 

The Index finished around breakeven and at worst levels, Woodside marks its highest ever close as oil prices climb, Australia's manufacturing PMI bounces but remains in contraction while services slumps back into contraction, free falling Chinese lithium futures and an unexpectedly weak quarterly from Core Lithium sends lithium stocks spiraling lower and a few broker notes of interest.

Let's dive in.

ASX 200 Session Chart

ASX 200 falls intraday to finished at worst levels (Source: Market Index)

Markets

Things were relatively quiet at the Index level, with weakness across the Materials sector offset by strength across Energy, Real Estate and Telcos. The lithium sector experienced heavy selling as Chinese lithium futures continued to crater. Adding further insult to injury was a very weak quarterly update from Core Lithium. Iron ore miners also pulled back, with heavyweights BHP, Rio Tinto and Fortescue all down around 1.5%.

It's going to be a massive week with megacap earnings, the Fed and US GDP data. So let's see what kind of market we wake up to.

Economy

Australia’s manufacturing PMI jumped to 49.6 in July from 48.2 in June.

• A five-month high but still signals a marginal decline for manufacturing activity

• “Helping to alleviate the deterioration in the overall health of the sector was a renewed rise in manufacturing production, the first in eight months.” – Judo Bank

• “Total new orders and new export business both declined again in July, but at reduced rates amid some signs of demand stabilisation.” – Judo Bank

Australia’s services PMI eased to 48.0 in July from 50.3 in June.

• “Service providers widely linked higher costs to rising staff pay. Selling prices also increased at a faster pace, but here the acceleration was centred on the service sector as charge inflation in manufacturing hit a 34-month low.” – Judo Bank

• ““The disinflationary trend evident in the PMI price indicators over the course of 2022 appears to have ceased.” – Warren Hogan, Chief Economic Advisor at Judo Bank

• “Both manufacturing and service sector input prices rose in July suggesting the new financial year has potentially brought with it an increase in business costs.”

Latest news

What happened today?

Lithium stocks got smashed today after a) Core Lithium's June quarter update missed analyst expectations by a wide margin and guided to FY24 spodumene production of 80,000 to 90,000 tonnes at $1,165-1,250 a tonne (Citi was expected 134,000 tonnes at $820 a tonne) and b) China's lithium carbonate futures in Guangzhou continued to plunge after a ~14% selloff last Friday, down another 4.5% in early trade (January 2024 delivery).

Pilbara Minerals (ASX: PLS) is expected to report its Q4 production after hours (if it stays true to its usual reporting time frames). Analysts are expecting Q4 production figures of:

• Spodumene production 162,000 dmt

• Spodumene shipments 159,000 dmt

• Unit operating cost FOB $630 a tonne

• FY23 unit operating cost guidance between $600-640 a tonne

Woodside (ASX: WDS) closed at a fresh all-time highs amid the resurgence in oil prices. Goldman Sachs said "with positioning still light, we believe flat price can continue to move higher towards our US$86/bbl Dec-23 Brent forecast." Chevron also pre-announced better-than-expected second quarter earnings of US$6 billion, which was still down 48% year-on-year on lower oil and gas prices.

Quite a few Industrial-ish names found strength including: MMA Offshore (ASX: MRM), Duratec (ASX: DUR), McMillian Shakespeare (ASX: MMS) and Seven Group (ASX: SVW).

South32 (ASX: S32) fell 2.6% after reporting softer-than-expected alumina production and a $1.3bn impairment relating to its Hermosa project in the US. This joins the growing list of impairments such as IGO's (ASX: IGO) Western Areas assets (Purchased for $1.2bn in June 2022 and faces $880-980m impairment).

Interesting news and movers

Trading higher

• +17.5% Gascoyne (GCY) – MRE upgrade

• +4.4% 4DMedical (4DX) – Non-dilutive funding

• +4.0% Cann Group (CAN) – Harvest update

• +2.3% Service Stream (SSM) – Contract award (Fri)

• +2.3% Myer (MYR) – Upgraded by CLSA

• +2.1%  James Hardie (JHX) – Upgraded by CSLA

• +2.1% Carsales (CAR) – Upgraded by CLSA

• +2.0% Paladin Energy (PDN) – Initiated by BofA

• Coal sector move: Tiger Realm (+20.0%), New Hope (+3.7%), Whitehaven Coal (+3.1%), Coronado Global (+2.4%)

Trading lower

• -42.0% Berkeley Energia (BKY) – Spanish election

• -17.2% Core Lithium (CXO) – Q4 production and earnings

• -5.2% Pact Group (PGH) – Contract extension with Woolworths

• -4.7% Monadelphous Group (MND) – Downgraded by JPMorgan

• -4.0% Brainchip (BRN) – Earnings

• -2.8% Chalice (CHN) – Earn-in agreement with Northam Resources

• -2.6% South32 (S32) – Q4 production and earnings

• -2.4% Galan Lithium (GLN) – HMW production update

• Lithium sector move: Latin Resources (-13.8%), Sayona (-11.8%), Argosy (-11.7%), Arizona Lithium (-9.1%), Delta Lithium (-7.0%), Patriot Battery Metals (-6.9%)

Broker notes

Macquarie’s take on Gold:

• “Gold was short of our expectation that it would make a new nominal price high in 2Q23 and then retreated towards $1,900/oz.”

• “However, our base case remains that resolve from central banks will lift real rates (as inflation falls) with gold seeing a negative correlation to increases in real interest rates and a sequentially stronger US dollar.”

• Top Australian picks: “Established producers: Northern Star Resources (organic growth) and Ramelius Resources (CF growth). Juniors: Bellevue Gold (developer to producer re-rate) and De Grey Mining (exploration / development potential).”

Macquarie’s Lithium update:

• “China NDRC has issued a notice today to promote automobile purchase. The notice commented on accelerated ICE retirement, investment in infrastructure and power grid capacity. We believe this presents a tailwind for EV consumption and penetration rates in China.”

• “PLS is our preferred producer with PMT presenting the greatest upside on exploration in the near term.”

Morgan Stanley’s take on Copper:

• “We continue to see copper well supported during Q3, as the red metal looks for direction ahead of next week's China Politburo meeting where much anticipated stimulus may be announced.”

• “However, we do see lower prices by year-end as supply growth comes through (MSe Q4 $8,300/t, Q1 $8,100/t).”

Scans