Category: Stock Market

The PPK Group Limited (ASX: PPK) share price rewarded investors handsomely during August. While the S&P/ASX 200 Index (ASX: XJO) pulled a paltry 1.9% in the month, PPK soared an astonishing 49.9%.

Much of this gain could be put down to the excitement surrounding the anticipated listing of Li-S Energy Ltd (ASX: LIS). Speaking of which, the lithium-sulphur battery tech company made its debut yesterday, exploding 174% in value. The rampant share price surge benefits PPK, with the company retaining a 45.4% shareholding.

Although much of the excitement took place yesterday, one Australian fund manager remains extremely bullish on PPK’s prospects.

Let’s take a closer look.

A big bet on ASX-listed PPK

In its August fund update, EGP Capital gave its investors a rundown on the latest for its Concentrated Value Fund. This fund is focused on Australian listed companies with the ambition of outperforming the Aussie index by 3% to 5% on an annual basis.

It was unsurprisingly a solid month for the fund, delivering a return of 6.7%. One of its biggest contributors was the PPK share price. Being the fund’s largest holding, investors benefitted from the enthusiasm behind the listing of Li-S Energy.

At the end of August, PPK constituted 15% of the fund’s overall holdings — this is nearly double its second-largest holding, United Overseas Australia Limited (ASX: UOS), at 8.8%.

Despite the miraculous returns thus far, EGP Capital holds a deeply positive sentiment towards ASX-listed PPK. As detailed in its monthly report, the fund believes the prospective market opportunity for the Li-Sulphur batteries is immense. In fact, founder and chief investment officer Tony Hansen stated:

I shall be surprised if the stock ever trades below $1 per share (the IPO price is 85c). Executed properly, this is a multi (multi)-billion-dollar opportunity.

One day in and Li-S Energy is sitting well above $2, let alone the $1 zone that Hansen mentions.

Massive market potential

In addition to this, the fund spoke highly of another PPK investment, White Graphene. The company released a table outlining some of its developmental projects.

From this, EGP Capital points out several large market opportunities for the application of White Graphene’s boron nitride nanosheets. These include:

• Concrete floor coating: estimated US$1.8 billion annual global market by 2027
• Wood coating: estimated US$12.3 billion annual global market by 2027
• Paint: estimated US$218 billion annual global market by 2028
• Fibreglass: estimated US$25.5 billion annual global market by 2028
• Faux leather: estimated US$57 billion annual global market by 2028
• Ammunition: estimated US$28.4 billion annual global market by 2028
• Wires and cables: estimated US$273.7 billion annual global market by 2028

Based on PPK’s final report for FY21, the company owns 59.8% of White Graphene.

Now what?

Finally, the fund addressed the risk posed to investors with the fund holding such a large position in PPK.

In Hansen’s words, “The management of each business needs to be careful about ensuring their investors are properly kept appraised of the prospects of each business. This is incredibly hard to do with prospectively world-changing technologies.”

As a result, the fund accepts increased volatility but expects strong upside potential for PPK on the ASX.

The post Why PPK (ASX:PPK) and Li-S Energy are this fund’s largest positions appeared first on The Motley Fool Australia.

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• Which ASX 300 shares are making headlines on Thursday?
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Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Woolworths Group Ltd (ASX: WOW) share price is trading lower with the market on Wednesday.

In morning trade, the conglomerate’s shares are down 0.5% to $38.13.

Not even the announcement of the pricing of $700 million of bonds has been able to keep the Woolworths share price in positive territory.

What did Woolworths announce?

This morning Woolworths announced that it has successfully priced $350 million of senior unsecured six year notes and $350 million of ten year notes. These were launched as part of its medium term note programme.

The company is raising these funds in order to support its growth and are linked to sustainability goals. Management notes that this reflects the company’s commitment to reducing carbon emissions.

In fact, the Sustainability Linked Bonds (SLB) structure embeds a penalty (via a margin increase) into the terms of the notes. These would apply if, at the end of FY 2025 and FY 2029 (for the six year and ten year notes respectively) the company’s scope 1 and 2 emissions are not aligned with the forecast trajectory to meet Woolworths’ 2030 carbon emissions reduction target.

Notes pricing

The release explains that the notes were priced at 1.85% for the six year notes and 2.75% for the 10 year notes. Settlement is expected to occur on 6 October 2021.

Woolworths intends to use the proceeds from the notes for general corporate purposes. This includes establishing long term funding of its recent investments in Quantium and PFD Food Services.

Woolworths’ Chief Financial Officer, Stephen Harrison, said: “Following the strong level of demand for our Euro sustainability linked bond transaction, we are pleased to have provided the Australian debt capital markets with a similar domestic offering. There was strong interest in the market reflecting the growing importance of sustainability in the debt capital markets.”

The Woolworths share price is up over 12% in 2021.

The post Woolworths (ASX:WOW) share price lower after raising $700 million appeared first on The Motley Fool Australia.

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• Woolworths (ASX:WOW) share price slumps this week despite Everyday Market launch
• Woolworths (ASX:WOW) and Coles (ASX:COL) could face a margin shock
• How do you value the Woolworths (ASX:WOW) share price?
• September hasn’t been a great month so far for the Woolworths (ASX:WOW) share price
• Why is the Woolworths (ASX:WOW) share price underperforming Coles today?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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ASX tech shares are taking off after Wall Street as rising bond yields pressured investors out of fast-growing technology shares.

The S&P 500, Nasdaq Composite and Dow Jones Industrial Average logged sharp declines, sliding 2.04%, 1.63% and 2.83% respectively.

Major US tech shares including Alphabet, Apple, Facebook and Microsoft fell between 2.38% to 3.66%, weighing on the S&P 500 and Nasdaq.

Benchmark 10-year US treasury yields have continued to rise this week, trading at their highest levels since late-June.

The yield on benchmark 10-year Treasury notes rose 5 basis points on Tuesday night to 1.541% and are currently fetching 1.546%.

A sea of red for ASX tech shares

The S&P/ASX Information Technology (INDEXASX: XIJ) index is currently the worst performing sector on Wednesday, down 2.85%.

This compares to the S&P/ASX 200 Index (ASX: XJO) which is currently down 1.37% to a 3-month low of 7,176.

Taking the brunt of the losses include EFTPOS provider Tyro Payments Ltd (ASX: TYR) sliding 5.10% to $3.91 and Zip Co Ltd (ASX: Z1P) down 4.93% to $6.75.

On the big end of town, heavyweights Afterpay Ltd (ASX: APT), Xero Limited(ASX: XRO) and WiseTech Global Ltd (ASX: WTC) are logging consistent declines, down between 2.6% and 3.8%.

Other notable losers include Nextdc Ltd (ASX: NXT) down 4.09% to $11.95, Carsales.com Ltd (ASX: CAR) down 3.53% to $24.59 and Altium Limited (ASX: ALU) down 2.89% to $34.57.

Why do yields matter?

Tech shares are able to justify expensive valuations from much higher cash flows expected in the future.

As yields increase, this can make future cash flows appear less valuable in the present.

Higher borrowing rates could also hinder growth prospects, especially if the company is already carrying significant debt.

ASX tech shares have enjoyed a prolonged era of ultra-low interest rates.

But looming interest rate hikes could pose a risk to tech and high-growth sectors.

The post Why ASX tech shares are crashing on Wednesday appeared first on The Motley Fool Australia.

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• Why CSL, Domino’s, Temple & Webster, & Xero shares are tumbling

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO, Alphabet (A shares), Alphabet (C shares), Altium, Apple, Facebook, Microsoft, Tyro Payments, WiseTech Global, Xero, and ZIPCOLTD FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO, Altium, WiseTech Global, and Xero. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Apple, Facebook, Tyro Payments, and carsales.com Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Polynovo Ltd (ASX: PNV) share price has not had a good time of it recently.

In the past 3 weeks, shares in the medical device company have tumbled more than 15%.  

Let’s take a look at why investors have been dumping Polynovo shares.

What’s weighing down the Polynovo share price?

The Polynovo share price has had a shocking year thus far.

The pain has continued for shareholders in the last 3 weeks as shares in the biotech continue their slide.

Despite the bearish price action, Polynovo has been scarce with price-sensitive news.

Most recently, the company made headlines after announcing the commencement of its Biomedical Advanced Research and Development Authority (BARDA) funded burn study in the United States.

Shares in Polynovo were given a brief reprieve as the company pursued FDA approval for its NovoSorb BTM product.

In addition, the resignation of the company’s chief operating officer, Dr Anthony Kaye, has also weighed on its shares.

However, much of the bearish sentiment towards the Polynovo share price can be traced back to its full-year report.

How did Polynovo perform in FY21?

Shares in Polynovo tanked late last month, despite releasing fairly robust results for FY21.

The biotech’s report was highlighted by a 32% increase in total revenue of $29.3 million.

Other highlights from Poynovo’s full-year report included:

• Distributor sales grew by 53% over the year
• Gross margin increased by 3% from “manufacturing efficiency gains”
• Corporate and overhead expenses increased by 10% as the business expanded
• Net profit after tax of $260,000 when adding back in non-cash items
• Achieved breakeven in FY21

Polynovo flagged strong results in FY22 in all of its markets, including the United States, Europe, United Kingdom, Middle East, Asia, Australia, and New Zealand.

However, investors did not seem impressed with the report, inflicting more selling pressure on the Polynovo share price.

Snapshot of the Polynovo share price

The Polynovo share price jumped off a cliff to start the year.

Shares in the Aussie biotech fell hard and fast in the early months of 2021 following a dour first-half report.

As a result, Polynovo shares have more than halved since the start of the year.

At the time of writing, shares in the biotech have continued their fall, trading more tan 2% lower for the day.  

The post Why has the Polynovo (ASX:PNV) share price tanked 15% in 3 weeks? appeared first on The Motley Fool Australia.

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• These were the worst performing ASX 200 (ASX:XJO) shares last week
• Why Cleanaway, IRESS, Omni Bridgeway, & Polynovo shares are dropping

Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended POLYNOVO FPO. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The S&P/ASX 200 Index (ASX: XJO) has slipped into the red in early trade on Wednesday, dropping 1.38% to 7,172.5 points.

Shares in rare earths’ producer Australian Strategic Materials (Hldngs) Ltd (ASX: ASM) are following the Index down, trading in the red this week and dropping another 1.12% this morning to $9.73.

In fact, the Australian Strategic Materials share price has dipped from a high of $13.66 on 26 August and is down 16% this month alone.

Here’s what appears to be behind these moves.

Why are Australian Strategic Materials’ shares trending down lately?

Even though Australian Strategic Materials’ share ticker was added to the S&P/ASX 300 Index (ASX: XKO) on 3 September, it hasn’t been enough to spur a lift in the company’s share price to date.

The company also released its FY21 statutory accounts last week where it outlined progress for the year, including several investment partnerships.

Investors didn’t appear too impressed given the company’s share price has failed to head back towards its previous highs.

Instead, investors have continued to sell ASM shares in droves. This has coincided with a cooling off in the price of Neodymium, a rare earth that the company has exposure to.

After a strong gain this year in the commodities markets, the price of Neodymium has climbed 26% this year to date.

However, this growth level has wound back in the last month or so and the rare earth has only edged higher by roughly 1.5% since August.

Zooming out, it appears there is weakness across the broader rare earths sector as well.

To assess the growth of shares in an industry, indexes and exchange traded funds (ETFs) serve as good proxies to do so.

The MVIS Global Rare Earth/Strategic Metals Index, which tracks the performance of the most important players in the global rare earths industry, is tracking down over the last month.

It has decreased in value by almost 5% since the start of September.

Also, the VanEck Rare Earth/Strategic Metals ETF (NYSEARCA: REMX) – another good proxy – has fallen 10% into the red this past month.

Hence, it appears that Australian Strategic Materials’ shares are falling in line with the broad sector, propelled by volatility in the underlying rare earths markets.

Australian Strategic Materials share price snapshot

On a longer term basis, the Australian Strategic Minerals share price has posted outsized returns this year to date.

It’s climbed 54% since January 1, extending its gain over the past 12 months to 363%.

These results are well ahead of the broad Index’s return of around 25% over the last year.

The post Why is the Australian Strategic Materials (ASX:ASM) share price down 16% this month? appeared first on The Motley Fool Australia.

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The author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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It was a painful time for the S&P 500 (INDEXSP: .INX) overnight. The S&P 500 dropped by 2.04% to 4,353 points. That’s one of the worst drops since the onset of the COVID-19 global pandemic.

For readers that don’t know, the S&P 500 is a list of 500 of the biggest and most profitable businesses in the US (and the world).

There are many names in the index that readers have probably heard of like Apple, Microsoft, Amazon.com, Alphabet (Google), Facebook, Tesla, Nvidia, Berkshire Hathaway, JPMorgan Chase, Johnson & Johnson, Visa, Procter & Gamble, Walt Disney, PayPal, Mastercard, Adobe, Salesforce, Netflix, Pfizer and so on.

Not only does the S&P 500 generate earnings from across the globe, but the US share market is also very influential on the rest of the capital markets around the world. As the biggest stock market, the US market can give signals that global investors watch and take actions on.

ASX shares also have a habit of moving upwards or downwards when the S&P 500 also has a very positive or negative day.

Looking at some of the biggest businesses in the US, the Apple share price fell 2.4%, the Microsoft share price dropped 3.6%, the Amazon.com share price went down, the Amazon.com share price declined 2.6%, the Alphabet share price sank 3.7%.

Many ASX shares have opened in negative territory this morning.

Why did the S&P 500 drop so much?

Only investors selling would be able to answer why they are willing to accept prices materially lower than yesterday.

One of the main changes overnight was that the US Treasury bond yields increased. The 30-year treasury bond yield jumped around 10 basis points, whilst oil prices also dropped. Interest rates can have an impact on asset valuations.

But, reporting by Bloomberg also pointed to some ongoing political drama in the US that could have been a catalyst for the drop. The media outlet reported:

During a Senate hearing, Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen both warned that a US default due to a failure to raise the debt ceiling would have catastrophic consequences. Republicans blocked a Democratic move in the Senate to raise the debt limit.

Heated remarks from Senator Elizabeth Warren also weighed on markets. After slamming Powell on his track record over financial regulation, Warren said he’s a “dangerous man to head up the Fed” and that’s why she’ll oppose his re-nomination.

What have ASX shares done in early trading?

Looking at some of the biggest businesses on the ASX, there are also some material declines in the S&P/ASX 200 Index (ASX: XJO), following on from the S&P 500. The ASX 200 as a whole is down 1.4%.

The Commonwealth Bank of Australia (ASX: CBA) share price has fallen 0.8%, the BHP Group Ltd (ASX: BHP) share price has dropped 2.5%, the Afterpay Ltd (ASX: APT) share price has declined 3.7%, the Zip Co Ltd (ASX: Z1P) share price is down 4.5% and the Xero Limited (ASX: XRO) share price has fallen 2.5%.

The post The S&P 500 just dropped 2%. Why is this impacting ASX shares? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO, Xero, and ZIPCOLTD FPO. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO and Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Fenix Resources Ltd (ASX: FEX) share price is struggling through September despite only good news being released by the company.

Fenix released its annual results and news of its maiden dividend on 15 September. At the time, its maiden dividend saw the iron ore producer with a massive 16.6% dividend yield.

However, that same notable dividend might have been the downfall of the Fenix share price. It fell 23% on its ex-dividend date.

At the time of writing, the Fenix share price has recovered slightly. It is currently trading at 23 cents, 20.69% lower than at the end of August.

Let’s take a closer look at the news that’s been driving the mineral explorer’s stock lately.

The month so far for Fenix

The Fenix share price is battling through a tough month despite posting a massive 16.6% dividend yield.

Fenix announced its profits and dividend for financial year 2021 last fortnight.

Over the 12 months ended 30 June 2021, the company sold 501,000 wet metric tonne of iron ore from its flagship Iron Ridge iron ore project. Production at the project began in December 2020, and its first sales occurred in February 2021.

As a result, Fenix boasted a $49 million net profit after tax for financial year 2021. Of its $49 million of profits, Fenix committed to paying out $24.8 million to its shareholders.

That represents a maiden dividend payment of 5.25 cents per share.

The Fenix share price gained 13% on the back of its annual results. Unfortunately, it fell 23% when the company surpassed its ex-dividend date on 20 September.

The company’s dividend will be paid out to shareholders on 5 October.

Fenix share price snapshot

This month’s drop has put Fenix’s stock into the red on the ASX.

Right now, it is 4% lower than it was at the start of 2021. However, it’s still 64% higher than it was this time last year.

The post Why has the Fenix Resources (ASX:FEX) share price crashed 20% this month? appeared first on The Motley Fool Australia.

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• Why is the Fenix (ASX:FEX) share price surging 10% on Thursday?
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• Fenix Resources (ASX:FEX) share price eyes 16% maiden dividend
• Worried about iron ore prices? This ASX share has prices locked in at A$230/tonne

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned.

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Telstra Corporation Ltd (ASX: TLS) share price is edging lower on Wednesday amid a broad market selloff.

At the time of writing, the telco giant’s shares are down 0.5% to $3.91.

This is actually better than the market as a whole, which may be due to the release of a shareholder presentation today.

What did Telstra release?

This morning Telstra is holding its retail shareholder event and has released its accompanying presentation.

The telco giant used the presentation to reiterate its T25 plans, which include bold growth targets in the coming years.

For example, the company is aiming to grow its underlying earnings before interest, tax, depreciation and amortisation (EBITDA) by a mid-single digit compound annual growth rate (CAGR) between FY 2021 and FY 2025.

Things are even better for its underlying earnings per share, with management targeting a high-teens CAGR for the same period.

Another focus for Telstra will be its dividend. Management advised that it intends to maximise its full franked dividend and seek growth over time.

Some of this growth will be underpinned by management’s cost cutting plans. It is seeking to remove a further $500 million of fixed costs from FY 2023 to FY 2025. Though, it stresses that this won’t be at the expense of investments in growth.

Is the Telstra share price in the buy zone?

One leading broker that sees a lot of value in the Telstra share price is Goldman Sachs.

A recent note out of the investment bank reveals that its analysts have a buy rating and $4.40 price target on its shares.

Based on the current Telstra share price, this implies potential upside of 12.5% or 16.5% if you include the forecast fully franked 16 cents per share dividend.

Goldman was pleased with Telstra’s T25 plans. It is expecting the plans to underpin solid earnings and dividend growth in the future.

The post Telstra (ASX:TLS) share price lower despite retail shareholder update appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Corporation Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Vulcan Energy Resources Ltd (ASX: VUL) share price is falling on Wednesday morning.

At the time of writing, the clean lithium developer’s shares are down 1% to $12.81.

Why is the Vulcan share price falling?

The Vulcan share price is trading lower today after a broad market selloff offset the release of a positive announcement.

That announcement reveals that Vulcan has secured a site for the planned Central Lithium Plant (CLP) of its Zero Carbon Lithium Project.

According to the release, the company has signed an agreement with chemical park management company, Infraserv, for a site located in the Industriepark Hochst just outside of Frankfurt in Germany.

The release notes that Hochst is one of the largest chemical sites in Europe and is home to 90 companies. These include Celanese, Clariant, Nobian, and Sanofi.

What is the CLP?

Vulcan’s CLP will be used as a processing hub. From this site the company will process lithium chloride from multiple combined geothermal and lithium sorption plants into lithium hydroxide monohydrate.

This lithium hydroxide monohydrate will then be transported to Vulcan’s European customers in the battery and electric vehicle industry. It believes this will dramatically lower the transport footprint of the current lithium supply chain.

The company will now work on obtaining the necessary permits in the chemical park to make the construction of the CLP a reality.

Vulcan’s Managing Director, Dr. Francis Wedin, commented: “Securing a site for the Central Lithium Plant is an important step toward the execution of the Zero Carbon Lithium Project. Importantly, the location allows for low carbon transport options from our nearby project areas, as well as renewable energy to power the proposed plant, which underpins our commitment to minimising our carbon footprint in each step of our process. This follows on from the first production of battery quality lithium hydroxide from our pilot plant, announced on 27th September.”

The post Vulcan (ASX:VUL) share price falls despite positive lithium plant update appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The iron ore price found its feet recently and BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO) shareholders may have China’s energy crisis to thank for this.

In case you forgot, the price of the steel making mineral plunged by more than half.

The commodity hit a record high over US$200 a tonne in May 2021 before bouncing last week. It’s currently trading at around US$100/t.

Power blackouts a boon for BHP and Rio Tinto

It’s not easy to nail down what prompted bargain hunters to jump in to support the price. But Macquarie Group Ltd (ASX: MQG) suspects its mainly to do with the rolling power blackouts that’s gripping parts of China.

The Chinese government is ordering industries and households to ration the use of electricity. This has impacted on electric arc furnace (EAF) operators more than traditional steel mills.

“Macquarie Commodity Strategy Team believes lower EAF operation could also be behind the iron ore price rebound late last week,” said Macquarie.

“As current production curtailment has shifted from emission reduction driven to power supply shortage driven, EAF mills have seen a clear drop in their operating rate over past two weeks, helping demand for integrated mills that use iron ore.”

Iron ore price stabilises at expense of EAF operators

EAF is a greener way of producing steel but it requires more power. The process uses scrap steel and direct reduced iron as raw material.

As output from EAF facilities are cut due to China’s electricity shortage, iron ore hungry steel mills are having to step up.

BHP and Rio Tinto share prices getting lift from China’s misstep

If so, this is a double-own-goal by the Chinese government and the irony shouldn’t be lost on ASX investors.

The crash in the iron ore price was in no small part triggered by the Communist Party’s policy decisions.

Officially, it wanted to drastically cut pollution ahead of the Winter Olympics and ordering steel mills to curtain production was an easy way to achieve this.

Unofficially, they seething that Australia was benefiting from record iron ore prices.

Market manipulation malfunction

But what significantly contributed to China’s power crisis was its decision to ban Australian coal imports.

Its aging infrastructure combined with a shortage of coal in that country have been blamed for China’s current predicament.

China’s addiction hard to break

To rub salt to the Chinese wound, iron ore exports from ASX iron ore producers, including Fortescue Metals Group Limited (ASX: FMG), have increased lately.

“The combined shipping rate for RIO, BHP and FMG in September to date has increased above the 800mtpa mark, at 847mtpa,” added Macquarie.

“By contrast, Vale shipments slowed by 12% to 6.2mt.”

Despite strong political will, China and Australia may not be able to sever economic ties as easily as they would like.

The post How China’s energy crisis could be good for BHP (ASX:BHP) and Rio Tinto (ASX:RIO) appeared first on The Motley Fool Australia.

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Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited, Fortescue Metals Group Limited, and Rio Tinto Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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