Coal and lithium drive Australian stocks’ outperformance in 2022

Galaxy Resources’ Mt Cattlin lithium project (spodumene) in Western Australia.

Australian shares are set to end 2022 as one of the region’s more resilient markets after eye-watering gains from mining firms offered shelter from a global rout.

The benchmark S&P/ASX 200 has fallen 4.5% so far in 2022, beating 19% declines across the S&P 500 and the MSCI Asia Pacific Index. The gauge is still poised for its worst annual performance since 2018.

Coal and oil stocks topped advancers on the index thanks to a global price surge sparked by the war in Ukraine. Technology and real estate shares languished near the bottom as rising interest rates and inflationary pressures weighed on the sectors.

Looking ahead, “resource stocks are set to benefit from the China re-opening theme in the early months of 2023,” said Jason Steed, head of Australian equity research at JPMorgan Chase & Co. “Further into the year, however, the fading of China re-opening impetus and wider global recession fears will drag on the miners.”

Here’s a look at some notable moves in 2022 (year-to-date share moves shown in brackets):

Energy surge

Whitehaven Coal Ltd. (+303%), New Hope Corp. Ltd (+194%) and Woodside Energy Group Ltd. (+64%)

Australian energy firms, one of the world’s biggest exporters of coal and natural gas, outperformed regional counterparts amid buoyant earnings and surging fuel prices. Local coal stocks also rallied as Russia’s invasion of Ukraine disrupted global energy supply.

Whitehaven Coal has gained more than 300% for the year to top the 200-member benchmark. Analysts see modest gains from here, with price targets compiled by Bloomberg suggesting a 9% advance over the next 12 months.

“Demand for coal usually peaks in January, so some of these shareholder returns could grow into the new year as the energy crisis continues,” said Jessica Amir, a strategist for Saxo Capital Markets based in Sydney. But coal prices may “lose heat before the mid year, as Europe and US head into summer and thus demand for coal will cool.”

Lithium rally

Core Lithium Ltd. (+66%), Sayona Mining Ltd. (+46%), Mineral Resources Ltd. (+43%)

Lithium miners also posted stellar gains, with Core Lithium leading the pack.

“2022 saw lithium stocks reach new highs as a higher-for-longer outlook took hold,” said Saul Kavonic, an energy analyst at Credit Suisse Group AG. 2023 could prove a pivotal year that tests the thesis “as more supply comes to market and the demand trajectory risks wobbling amid global economic slowdown,” he added.

Iron ore champions

BHP Group Ltd. (+25%), Rio Tinto Ltd. (+15%)

The country’s behemoth iron ore miners ended the year on a high as China’s abrupt Covid Zero reversal and a steady stream of supportive policies raised the outlook for demand.

But a bold push by China — the world’s biggest iron ore buyer — to centralize a large chunk of its buying under a new single state-owned company may shake pricing dynamics and affect Aussie suppliers.

(By Georgina Mckay)


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