Issue 165 | April 2017

Analysis

WA Index

Issue 165 | April 2017

Welcome to the 165th edition of the Deloitte WA Index, a monthly review of Western Australian stocks and indices.

Download the list of WA’s top 100 listed companies, as of 30 April, explore the sections below and if you don’t currently receive our WA Index, please register to be added to our distribution list.

Highlights

If you have any questions in relation to the Deloitte WA Index please contact Angela McIlroy.

As of 30 April 2017

Commodity review

A general downward trend in commodity prices are observed in the current month, with the key exception being hard coking coal which posted strong gains. While the Asian market continues to be the main driver for movements in commodities, Cyclone Debbie had its say on the price of coking coal this month.

Cyclones are known to be damaging. However, they are also known for enticing speculative trades that often lead to commodity price gains. To this end, hard coking coal increased to US$191.00/tonne in April from US$161.00/tonne in March, representing an 18.6% increase. This surge was boosted by the disruptions to Australian coal exports caused by Cyclone Debbie, where widespread mine closures in Queensland created shortage concerns. Widespread mine closures also prompted some coal traders to speculate the supply disruptions could rival that of Cyclone Yasi in 2011, when we recall the spot price of coking coal topping US$400 a tonne.

Optimistic investors drove natural gas prices up by 3.3% to settle at US$3.17/mmbtu on the back of a tighter balance between supply and demand. Demand for gas in April is considered to be seasonally low as no significant heating or cooling need required.  However, this is counteracted by the increase in demand from a triad of markets such as gas for industry and exports, more specifically that Mexico’s emerging economy is expected to see capacity delivered to Mexico doubled by the end of 2018.

Gold prices rose by 1.7% in April to close at US$1,267.86/troy oz, driven by heightened geopolitical tensions over North Korea. The weakening of US dollar against all currencies further edged up gold prices. Signs of rebound in Indian demand with the ease of the government’s demonetisation policy towards a more transparent gold market also contributed to the improvement in gold prices.

Iron ore on the other hand has taken a fall to close at US$68.50/tonne, representing a 16.5% retreat from last month. The main driver of this fall was concerns around multi-year high Chinese stockpiles. This price movement was further echoed by renewed pessimism in Chinese steel markets with doubts persisting over the slowing Chinese government stimulus.

Similar to iron ore, nickel suffered a 5.6% price dip in April to close the month at US$9,404.00/tonne due to China’s softening steel industry. Nickel prices hit a 10-month low amidst worries on demand from top nickel consumer, China, after its trade data showed falling imports of the metal which is used in stainless steel production.

Crude oil prices have declined for the second consecutive month to close at US$50.66/bbl. This price movement was attributable to the expanding U.S. crude production and higher stockpiles, undercutting efforts by major producers and OPEC to moderate global supply. This is in contradictory to the past where stockpiles usually fall this time of the year as crude processing ramps up ahead of the U.S. summer driving season. The uncertainties arose from OPEC’s decision in extending production cuts in the future have also masked the performance of crude oil.

Commodity and Precious Metal Prices

Select above image to enhance the Commodity and Precious Metal Prices
Select above image to enhance the Commodity and Precious Metal Prices

Performance of WA Index and global indices

Select above image to enhance the Performance of WA Index and global indices
Select above image to enhance the Performance of WA Index and global indices

WA Index movement

Select above image to enhance the WA Index movement
Select above image to enhance the WA Index movement

The Deloitte WA Index retreated during April as the market capitalisation of Western Australian listed companies decreased by 4.2% to close the month at AU$159.0bn.

Deloitte Clients & Markets Partner -Western Australia, Tim Richards, said the WA Index has succumbed to its commodity market influences, this month posting its first decline in 5 months. Hard coking coal pricing gains in the wake of Cyclone Debbie were unable to offset the impact of a 16.5% retreat in iron ore pricing this month, driving our resource-heavy WA listed company index lower.

Among the major Index players in April:

  • Iluka Resources Limited’s market capitalisation rose by AU$326.2m (10.2%) following the 31 March quarterly production report. The report outlined a 118.5% revenue increase compared to the previous period reflecting a significant period on period increase in sales volumes. A higher weighted average price for both zircon and rutile was also achieved during the quarter compared to the average 2016 levels
  • Northern Star Resources Limited’s market capitalisation increased by AU$131.9m (5.4%) off the back of a strong quarterly result highlighting costs reductions that assisted in driving up its cash and investments balance by A$90 million. The company also stated it remained on track to meet FY2017 guidance of 485,000-515,000oz
  • Fortescue Metals Group Limited’s market capitalisation decreased by AU$2,861.0m (14.8%) during April. The decline was predominantly as a result of a fall in the iron ore price in April of 16.5%, driven by concerns around high levels of Chinese stockpiles.

 

Key commodities surveyed during April included:

  • The US S&P 500 experienced a 0.9% increase as a result of expectations for a tax restructure plan. Additionally markets showed relatively positive movement after the first round of the France presidential election was consistent with expectations.
  • The FTSE 100 fell by 1.6% during the month, dragged down by a stronger pound and falling prices of commodities as well as British Prime Minister, Theresa May, calling for a snap general election
  • The All ordinaries rose 0.7% despite resistance from the energy space as the big banks and Qantas displayed positive results. With the iron ore price however falling by over 16% the all ordinaries struggled to show impressive gains during April
  • The Nikkei rose 1.5% following a boost of confidence from the results of France’s presidential election with a lean towards centrist Emmanuel Macron.
LED board

Top performers of the month

Western Australian top performers over the past month by growth in market capitalisation

Select above image to enhance the Top performers of the month
Select above image to enhance the Top performers of the month

The top Deloitte WA Index Movers and Shakers in March included:

  • Australis Oil and Gas Limited’s market capitalisation rose by AU$101.9m (110.5%) during the month as the company’s share price spiked after completing its AU$100m share issue to settle their US Shale acquisition. This involved the acquisition of all TMS assets of Encana Oil & Gas (USA) Inc. The TMS has been identified as one of the few remaining emerging oil shale basins with future potential in which Australis will be the largest holder within the region with 81,000 net acres
  • Talga Resources Limited’s market capitalisation increased by AU$60.0m (66.0%). This increase follows the announcement of positive results verified by an independent test laboratory, on graphene enhanced prototype concrete samples. The results evidently affirmed Talga’s commercialisation strategy in the building and construction sector. . In addition to this an announced JORC mineral resource estimate boosted Talga’s confidence surrounding its Nunasvaara graphite deposit
  • Homeloans Ltd’s market capitalisation increased AU$156.1m (1692.3%). This significant increase was sparked by the announcement that its wholly owned subsidiary RESIMAC had priced an RMBS transaction which was due to settle on 13th April 2017. The transaction involved a capital structure with dual-tranche USD 144a notes, giving investors’ choice in duration and cash flow. It has been identified as an essential component of RESIMAC’s 2017 funding plan whilst allowing capacity and pricing support to the company’s recent business activities.
Elevator Reflection

WA Index Feature Articles

WA Economic Outlook – Down but not out

Western Australia continues to feel the cold hard reality of the commodity cycle but economic conditions in WA should steady from 2018. However, the new State Government has its work cut out. 

Download the full report.

The Digital Revolution – Mining starts to reinvent the future

By bringing together our understanding of shareholder value, mining operations, technology and analytics, we have developed an approach to the “digital mine” which helps mining organisations make the most of the digital opportunity and avoid the many potential pitfalls that come with the adoption of new technologies.

Download the full report.

Mining and METS - Engines of economic growth and prosperity for Australians

A Deloitte Access Economics report for the Minerals Council of Australia finds that the total economic contribution of Australia’s mining and METS sector was $236.8 billion in 2015-16.

Download the full report. 

 

 

 

We would welcome the opportunity to discuss these reports in more detail. Please reach out to your Deloitte contacts for more information.

If you don’t currently receive our WA Index, you can register to be added to our distribution list.

If you have any questions in relation to the Deloitte WA Index please contact Angela McIlroy.

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