Issue 155 | May 2016
Welcome to the 155th edition of the Deloitte WA Index, a monthly review of Western Australian stocks and indices.
- Download WA's Top 100 listed companies
- Commodity Review
- Performance of WA Index and global indices
- WA Index movement
- Top performers of the month
Download the list of WA’s top 100 listed companies, as of 30th April, explore the sections below and if you don’t currently receive our WA Index, please register to be added to our distribution list.
- Commodity review
- Performance of WA Index and global indices
- WA Index movement
- Top performers of the month.
- WA Outlook - May 2016.
If you have any questions in relation to the Deloitte WA Index please contact Angela McIlroy.
While commodities have taken a substantial hit over the past 18 months, prices have rebounded strongly during April. Significant increases have been seen in crude oil (19.1%), iron ore (17.7%) and silver (15.8%), while nickel and aluminium have risen by 11.4% and 10.5% respectively.
Iron ore continued to soar throughout the month, finishing on a five-week high of US$64.50 per tonne. This follows strong growth in steel prices in China where construction and manufacturing activity has exceeded forecasts, and steel mills in Tangshan rushed to maximise their output before compulsory cuts at the end of April, driven by the requirement to halve emissions on certain days during the Tangshan Horticultural Exposition, which commenced at the end of April and runs until mid-October. During April global steel production has risen to its highest monthly level since mid-2015, whilst both Rio Tinto Limited and BHP Limited have reduced iron ore production forecasts this month, which has further bolstered iron ore prices.
Crude oil prices rose to their highest level since November 2015, with oil sitting at US$47.59 a barrel, with a weaker US dollar combined with declining US production being the primary drivers of this rally. The US dollar was not helped by the Federal Reserve’s decision to keep interest rates on hold. Whilst, the failure of oil producers to agree a production freeze at a meeting in Doha during the month did not have the damaging effect that some expected.
As officials in China talk of growth and stimulus, and Chinese industrial corporations show increased returns, investor confidence has been bolstered resulting in a rush of speculative trading and demand for industrial metals has risen. This rapid rise in the market has stirred up concerns and the Chinese securities regulator has ordered commodity futures exchanges to rein in speculative trading. Nickel rose by 11.4% to US$9,409.00 per tonne, boosted by higher oil prices and declining surpluses as a result of production cuts. Alloy production in India has also increased demand for nickel, and the market remains enthusiastic in anticipation of stronger demand from China.
Silver has risen to its highest level since January 2015, rising by US$2.44 per troy oz (15.8%) during April. Silver remains a safe haven asset, benefiting from weak global economic growth, as shown by US GDP growing only 0.5% during the first quarter of 2016, influenced by the depreciation in the US dollar and being a driver behind US interest rates remaining on hold. Another factor for the price rise in comparison to gold prices is largely due to silvers substantial industrial uses on the back of positive Chinese data.
Aluminium increased by 10.5% to US$1,669.75 per tonne, as demand in China shows signs of improvements on the back of the recovery of the property and construction industry, driven largely by reduced down-payment requirements and low interest rates implemented by Chinese policymakers. This positive momentum has led to the resumption of production by Chinese aluminium smelters that had ceased production last year. This, along with traders driving up prices, has led to concerns that the market may be over heating, as the commodity trades at a 10 month high.
Uranium prices fell by 5.7% to US$27.50 per tonne during April, and was the only commodity surveyed to significantly fall. There has been a reduction in demand which is evidenced by only two of Japan’s fifty nuclear reactors currently being online, France reducing its reliance on nuclear energy and Germany’s plans to phase it out altogether. On the other hand, new nuclear reactors are being built in China, India, Russia and the Middle East, although it will take some time before stockpiles are reduced to a level where demand will meet the available supply.
Commodity and Precious Metal Prices
The Deloitte WA Index increased during April, with the market capitalisation of Western Australian listed companies increasing by 9.0% and closing the month at AU$136.2bn. This now adds to the continued positive trend with the Deloitte WA Index increasing over the past past 3, 6 and 12 month periods.
The Deloitte WA Index heavyweights Westfarmers and Woodside added AU$4.0bn between them. Significant other Index movements in April included:
- Fortescue Metals Group Limited’s market capitalisation increased by AU$2.7bn (33.7%), with investors responding favourably to ongoing cost reductions alongside stronger iron ore prices during the month
- Resolute Mining Limited’s market capitalisation increased by AU$280m (80.6%) following the announcement of strong cash and bullion positions totalling $90m, and the company achieving a positive net cash/bullion/debt balance of $19m at 31 March, compared to a negative $22m at the start of the quarter
- Pilbara Minerals Limited’s market capitalisation grew by AU$219m (59.0%), following strong interest for its AU$80m equity raising in order to fast track the development of its Pilgangoora Lithium-Tantalum project. Twelve months ago, the company’s share price was trading at 3.5 cents and is now currently sitting at 63 cents per share.
Equity markets surveyed posted mixed results for the month of April:
- The All Ordinaries rose 3.2%. Mining heavyweights BHP Limited and Rio Tinto Limited led the way, adding 22.7% and 20.8% respectively to their market capitalisations with investors reacting favourably to the surge in commodity prices during the month
- The FTSE 100 rose by 1.1%, similarly impacted by the mining sector, rising to a four-month high. Similar to the All Ordinaries, stronger commodity prices pushed up heavyweight mining stocks Anglo American Plc, Rio Tinto and BHP
- The S&P 500 increased by a marginal 0.3%, as investors pondered earning reports. After showing strong results mid-month, gains were dissolved as U.S. stocks posted their largest weekly fall in more than two months during the last week of April. The main driver of the fall was Apple Inc, with its share price dropping by 14.8% during the month
- The Nikkei was the only market to slide, continuing its downward trend of the past 12 months and posting a decline of 0.6%, with the Bank of Japan’s decision to not provide further stimulus not sitting well with investors.
Top Deloitte WA Index ‘Movers and Shakers’ in April included:
- Eden Energy Limited (EDE) posted a 165.8% increase in market capitalisation, from AU$98m to AU$261m. The company’s share price increased after it finalised a US$25m financial assistance and incentives package that will see the establishment of a new manufacturing plant in the U.S. state of Georgia
- Perseus Mining Limited (PRU) posted
a 119.5%increase in market capitalisation, from AU$212m to AU$465m. The share price soared following the announcement that the West African gold miner had updated its life of mine plan for Edikan in Ghana
- Gascoyne Resources Limited (GCY) posted a 109.2% increase in market capitalisation, from AU$71m to AU$149m. This followed a successful AU$15m placement to sophisticated investors to pursue gold targets at the prospective Dalgaranga and the Glenburgh Gold projects, both in WA.
WA Outlook – May 2016
Deloitte Access Economics expects Western Australia’s economy will continue to grow in the years