Evening Wrap: ASX 200 flat, Lynas' rare earth prices plunge + Citi remains bearish on iron ore

The S&P/ASX 200 closed 7 points higher, up 0.09%. 

The Index closed around breakeven after a volatile session, China's manufacturing PMI flags its fourth consecutive month of contraction, Citi reaffirms its bearish view on iron ore and expects prices to fall to US$100 a tonne in the near term and Lynas rare earth prices fall 50% year-on-year.

Let's dive in.

ASX 200 Session Chart

ASX 200 closes breakeven amid a choppy session (Source: Market Index)

Markets

What a volatile session despite a strong lead from US markets. This serves as a reminder that the Australian and US markets are two different things at the moment. One is able to find momentum while the other is trying its best to earn a participation award.

The ASX 200 finished around breakeven on Monday from a session high of 0.4%. Encouragingly, it also bounced from a session low of -0.40%. The volatility was present across most sectors including Energy, Materials and Financials. Let's see how this plays out as we head into August, which has historically been a flat month for the ASX (an average gain of 0.19%).

Economy

China’s NBS Manufacturing PMI came in at 49.3 in July from 49.0 in June.

• Slightly better than the 49.2 forecast in a Reuters poll

• Marks the fourth consecutive month of contraction

• The NBS said construction activity fell 4.5 percentage points due to extreme weather conditions 

China’s NBS Services PMI came in at 51.5 in July from 53.2 in June.

• “Showed a larger-than-expected slowdown in growth and further falls could see it skirting with contraction.” – ING Economics 

Latest news

Interesting news and movers

Trading higher

• +26.5% Ecofibre (EOF) – Earnings plus MoU with Under Armour

• +25.0% Mobilicom (MOB) – Earnings

• +20.8% AMA Group (AMA) – Earnings

• +8.6% Electro Optic Systems (EOS) 

• +8.0%  Atturra (ATA) – Earnings

• +6.6% Emerald Resources (EMR) – FY24 guidance

• +5.4% Lindian Resources (LIN) – Assay results

• +2.9% Thorn Group (TGA) – Earnings

• +2.6% Lynas (LYC) – Q4 production

• +2.6% Smartgroup (SIQ) – Upgraded by Macquarie 

• +0.5% Neuren Pharmaceuticals (NEU) – Earnings

Trading lower

• -32.3% Starpharma (SPL) – Astrazeneca discontinues development

• -20.2% Silver Lake Resources (SLR) – Production and guidance

• -19.2% Carbon Revolution (CBR) – Earnings

• -16.7% Betmakers (BET) – Earnings

• -13.6% Mach7 Technologies (M7T) – Earnings

• -7.2% Kingsgate Consolidated (KCN) – Earnings

• -6.2% Patriot Battery Metals (PMT) – Maiden MRE

• -4.6% IGO (IGO) – Production and guidance

• -1.5% Argosy (AGY) – Earnings

Broker notes

Citi’s take on iron ore:

• “Singapore iron ore plunged ~7% to $105/t as of July 28th. We reiterate our near-term bearish iron ore view with 0-3 point price target unchanged at $100/t.”

• “Prior to the Politburo, the market had expected large stimulus, but this was mostly misplaced, and steel production controls seemed to be kicking off eventually putting pressure on the hot metal production.”

• “However, even if there were to be a moderate stimulus in the property sectors, it’s still hard to see that the old property model or the circularity in property development could be restored.”

• “We think the market will move into a surplus with increasing steel production controls kicking off, reducing offtake; meanwhile we expect iron ore supply to remained relatively stable in 2H23.” 

Cit’s take on Lynas:

• Neutral rated with $7.55 target price ($6.56 at 28 Jul close)

• “Lynas achieved record NdPr production of 1,864t vs Citi estimate of 1,700t (10% beat). Sales volumes were down 18% QoQ and 17% lower than Citi est.”

• “Average selling price of A$38.9/kg was 8% beat vs Citi at A$36/kg but down 51% YoY and total REO sales of 4,050t were 17% lower than Citi.”

• “Selling price lower than Consensus estimates and might cause market to rethink near-term NdPr price assumptions.”

Scans