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https://www.ausbiz.com.au/media/perth-basin-energy-fight-hotting-up?videoId=25516
Overview
The past week has been all about the US Federal Reserve and China, with commodity and financial markets trying to second-guess what actions they might take next – and could there be a brighter outlook for commodities as a result.
Gold
There is a growing consensus that the worst is definitely behind it as far as gold is concerned.
Gold started the week strongly, hitting a 3-month high not far off the $1800 per ounce level and building on last week’s rally due to promising inflation data from the CPI. Investors hope the latest inflation numbers mean that a looser Federal Reserve interest rate policy is around the corner, with the Fed slowing its aggressive rate-hiking program.
Gold has suffered as a result of the Fed’s rate program, with a double-whammy as investors have chased yield, whilst rising rates have also dragged the US dollar higher, negatively impacting the price of gold.
Iron Ore
We’ve seen iron ore nudge closer to that psychologically important $100 per tonne level, as prices rise on the back of not just growing optimism over an easing of some of China’s covid restrictions, but some concrete measures that have been put in place, including measures designed to boost its property sector.
Iron ore is a commodity whose fortunes are directly linked to the health of China’s property sector – and we’ve seen iron ore prices fall from a high of $220 a tonne last year to a recent low below $80 a tonne – all due to measures that China has taken that have directly or indirectly impacted its property sector in a negative way.
Lithium
We’ve seen a turnaround of sorts with respect to sentiment in the lithium sector. We’ve seen lithium futures plunge amid rumours that a Chinese cathode producer may have cut output targets, whilst some analysts are concerned about accelerating supply.
I believe the current pull back in the lithium sector is largely due to profit-taking, as investors look to cash in some of their recent strong gains. Lithium as a commodity has really outperformed, and so have lithium equities, particularly when you compare them to the performance of the rest of the resource sector over the course of this year.
So inevitably we might also be starting to see some switching from lithium equities, where a lot of the upside might already be already priced in, to other sectors where investors see better value – such as base metals and iron ore – which have underperformed lately, but are starting to re-emerge due to the potential for an easing of Chinese covid restrictions.
Perth Basin
From an equity market perspective, there’s a significant game emerging in Western Australia’s gas sector, specifically the Perth Basin.
There’s a fight for control of emerging gas assets that’s hotting up, with takeover action taking place. We’ve seen Beach Energy lodge a $246m bid for Warrego Energy, which has trumped a rival bid for Warrego by Strike Energy. Shares prices of most of the Perth Basin exposures have moved higher, including Warrego, Strike, and Talon Energy, as part of a regional consolidation play.
And it’s not just Beach Energy as a suitor, we could see companies like Santos and Mitsui enter the picture. It’s all about better use of production and processing infrastructure and avoiding duplication.
