Evening Wrap: ASX 200 nears 12-month low, Syrah Resources rallies 44% on China's graphite curbs

The S&P/ASX 200 closed 57 points lower, down -0.82%. 

The Index marks its lowest close since 31 October 2022, Syrah Resources rallied for a second straight day after China announced graphite export curbs last Friday, the lithium sector is experiencing a uptick in M&A activity and a few Morgan Stanley notes of interest.

Let's dive in.

ASX 200 Session Chart

ASX 200 lower and finished near worst levels (Source: Market Index)

Markets

The ASX 200 finished lower and near worst levels on Monday, now down 3.3% in the last three sessions. The Resource sector led to the downside, led by declines from heavyweights Woodside (-3.2%), Fortescue Tinto (-2.7%), Rio Tinto (-2.4%) and BHP (-2.4%). Defensive sectors including Healthcare, Staples and Utilities managed to close in positive territory.

The Index is once again an increasingly oversold state and due for a short-term bounce. However, without the sustained stabilisation (and peak) in bond yields, stocks are unlikely to find significant relief.

Economy

No major economic announcements.

Latest news

Graphite Stocks Soar

Last Friday, China said that the exports of some types of natural and synthetic graphite would require permits from December 1.

Here are some interesting takeaways from a Reuters report:

• "Some graphite consumers will aim to accelerate imports of the EV battery ingredient from China in November before the country's export curbs for some products come into force, but it may be difficult due to complex specifications," analysts said.

• "I expect we will see a surge in November of both buying and prices," said Tom Burkett at consultancy, Global Graphite Advisory LLC

• The curbs at similar to those made on August 1 for two niche chip-making metals, gallium and germanium

• The two metals boosted China's exports in July as overseas buyers rushed to lock in supply

• However, Wood Mackenzie says companies are now beginning to get Chinese licenses for gallium and germanium

The price action for Syrah Resources (ASX: SYR) was crazy to say the least.

It opened 17.0% higher as the market opened on Monday and closed 41.5% higher.

Syrah Resources intraday price chart (Source: TradingView)

It's worth noting that Syrah is the third most shorted stock with approximately 10.9% short interest.

Lithium M&A

Monday saw a flurry of capital markets activity in the lithium sector, including:

• Azure Minerals (ASX: AZS) shares halted pending a potential change of control transaction. The Australian says SQM may be back with another takeover offer

• Calidus Resources (ASX: CAI) notes SQM 30% purchase of its Pirra Lithium Project

• Latin Resources (ASX: LRS) received firm commitments to raise $35m at 25 cents per share

Interesting news and movers

Trading higher

• +20.0% Immutep (IMM) – Phase II trial results

• +15.4% Calidus Resources (CAI) – SQM purchases 30% of Pirra Lithium

• +5.2% Australian Vintage (AVG) – Aus and China suspend dispute on wine

• +3.9% Starpharma (SPL) – R&D tax incentive refund 

• +3.3% Australian Clinical Labs (ACL) – Q1 update

Trading lower

• -7.7% Aeris Resources (AIS) – September quarter production update

• -7.1% Australian Strategic Metals (ASM) – Vietnamese rare earth oxide update

• -6.4% Helloworld (HLO) – Q1 update

• -5.7% Latin Resources (LRS) – Raise $35m at 25 cents per share

Broker notes

A few Morgan Stanley notes of interest:

Alumina (AWC) – Overweight with $1.40 target ($0.81 as at Oct 20)

• “An in-line 3Q result, with operational performance starting to improve. Mine plan approvals expected by year-end are the key catalyst for a re-rating from here, in our view.”

• “At its current price, AWC represents value, however we note continued risk posed from a negative/highly restrictive decision.”

Bluescope Steel (BSL) – Underweight with $18.00 target ($17.75 at Oct 19)

• “1H guidance is in-line with our recently downgraded forecasts and we think is largely factored into the share price.”

• “However, we think the bigger issue will be the likely adjustment to consensus 2H expectations.”

Commonwealth Bank (CBA) – Underweight with $84.50 target ($99.78 at Oct 19)

• ”1Q24 trading update on November 14: We forecast cash profit of ~A$2.51bn (down ~3% on the 2H23) and pre-provision profit of ~A$3.82bn (down ~2%), with flat revenues and ~2.5% expense growth.”

• “In 1Q24, we expect the margin to fall further as the lagged impact of deposit switching and higher term deposit rates emerges.”

• “We believe recent mortgage trends are likely to continue in the near- term. However, we doubt that CBA has much appetite for ongoing market share loss … We expect a pricing response in the months ahead, creating risk to margins at CBA and the other major banks.”

Scans