Australia’s mining sector has entered a bear market as investors dump stocks amid fears that the conflict in Iran will cause a critical diesel shortage, potentially forcing mines to curtail production. The S&P/ASX 200 Materials Index has plummeted 20.3 per cent since the conflict began last month, reflecting Australia’s vulnerability to the closure of the Strait of Hormuz, which impacts a significant portion of global energy supply. A brief rebound occurred after US President Trump eased tensions, but concerns remain about long-term fuel supplies, given that Australia imports about 90 per cent of its diesel.
Miners heavily rely on diesel to power machinery, transport materials, and operate generators. While companies typically maintain a few weeks’ worth of fuel reserves, investors worry that some mines could face shortages within a fortnight. Major diesel suppliers, like China, have already been forced to cancel exports, exacerbating the situation. Fund managers are preparing for potential diesel restrictions and selling shares in companies most susceptible to supply disruptions.
Perennial portfolio manager Sam Berridge notes that Australia is uniquely vulnerable due to low fuel inventory and high import reliance. Perennial is an investment management firm that offers a range of funds across various asset classes. Their Strategic Natural Resources Trust is a fund focused on investments in the natural resources sector. Berridge has sold all ASX-listed gold producer positions but retained holdings in offshore miners. Acorn Capital portfolio manager Rick Squire sees the sell-off as a buying opportunity, acquiring base metal stocks while reducing exposure to miners at high risk of fuel shortages.
The rapid decline in the resources sector briefly pulled the S&P/ASX 200 index into correction territory. Morgan Stanley has warned clients that a full-blown energy supply shock could cause the sharemarket to drop further. The firm’s commodities strategist, Amy Gower, noted that the focus has shifted from supply impacts to demand risks, weighing on prices.
