Issue 161 | December 2016

Analysis

WA Index

Issue 161 | December 2016

Welcome to the 161st 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 November, 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 November 2016

Commodity review

November saw the favourable side of uncertainty with the US presidential election suggesting greater trade within the infrastructure and automotive markets which positively impacted commodity prices. China’s recent reforms and the tightening by regulators boosted commodity imports, with coking coal rising by 25.8%. Copper, iron ore, lead, palladium and zinc all closed significantly higher than October.

Copper increased by 20.1% to US$5,813 per tonne as the Trump Administration pledges to spend US$1 trillion on infrastructure, creating a core demand for metals. Demand for Copper also increased off the back of the construction approval for a US$12 billion Chinese railway project in Nigeria in an effort by the Chinese to win more construction projects around the globe.

Iron Ore has continued its 3 month increase finishing at US$74.50 per tonne, a 14.6% increase from October, and a doubling from January this year. Whilst the increase in physical demand from China has been the key driver, the speculation of further demand from a Trump-led US Government has positively impacted the price in the past month. Despite the increase over the past year however, there is some concern as to how China is stimulating their economy with experts believing there is a medium term risk of a market slow down.

Lead increased by 14.7% to US$2,350 per tonne primarily attributed to the closure and reform of a number of Chinese mines due to safety issues as well as weather related stops. This has resulted in a greater reliance on imports and ultimately contributed to the spike in price. As the global economy continues to strengthen, this is driving an increase in demand for lead within both the infrastructure and automotive industries.

Palladium increased by 25.8% to US$770 per ounce due to an anticipated boost in demand for automobiles as well as infrastructure from the recently elected Trump Administration. Expected growth in these US markets has boosted stimulus packages in China therefore boosting demand for the commodity.

Zinc prices have been driven up to US$2,688 per tonne due to speculation that mine closures and suspensions in Australia and Peru, driven by poor demand at the start of the year, will lead to shortages. Investors additionally have confidence in the infrastructure and automotive markets ahead, and zinc finished 9.6% higher than previous month.

Coking coal has continued to soar, rising by 25.8% as the implementation of the 276 day rule in China has lowered production to week days only. This has been reinforced by the closure of coke ovens during pollution events. The price is expected to continue its climb while the commodity’s demand exceeds domestic production in China.

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 strengthened during November with the market capitalisation of Western Australian listed companies increasing by 2.3% to close the month at AU$155.7bn.

Deloitte Clients & Markets Partner - Western Australia, Tim Richards, said OPEC’s initiative to light the fuse under the oil price, together with Trump’s campaign pledges have seen a major response in global markets and stocks across most sectors. The Deloitte WA Index improved from October following increases in materials and energy stocks.

Commodity prices were heightened by the aftermath of the US election in early November. Coking coal, copper, iron ore, lead, palladium and zinc all closed significantly higher than the previous month. Promises of growth and enhanced demand in the automotive and infrastructure industries has been one of the key drivers of the market’s performance.

Among the major movers in November:

  • Galaxy Resources Limiteds market capitalisation rose by AU$157.0m (24.6%). The lithium miner’s share price increased as construction on its Mt Cattlin project was completed and ore commissioning commenced on 11 November 2016, with the first lithium concentrate production occurring shortly thereafter. The Company also nominated its first shipment vessel from the Port of Esperance in the same month in addition to awarding a mining contract to Piacentini & Son Pty Ltd for its Mt Cattlin project
  • Western Areas Limited‘s market capitalisation rose by AU$138.8m (20.6%) during the month. This was mainly driven by the price of Nickel improving by 6.1% to finish at US$11,028/MT, as well as the company securing offtake contracts with both Tsingshan Group and BHP Nickel West Pty Ltd
  • Pilbara Minerals Limited‘s market capitalisation rose by AU$87.7m (14.7%) during November following news regarding an offtake agreement with Shandong Ruifu (Chinese lithium carbonate producer), a resource upgrade at its Pilgangoora Lithium-Tantalum Project, as well as the acquisition of the Lynas Find project (a lithium project directly adjoining its Pilgangoora project) from Dakota Minerals.

The equity market surveyed showed some volatility during November:

  • The All Ordinaries rose by 1.8%, painting a positive picture following an excellent month for materials and energy. The rally in materials and energy stocks was mainly due to OPEC’s deal to cut production which lifted oil prices. Australian shares enjoyed their best November in eleven years thanks to a euphoric market reaction to the shock US election result
  • Similarly, the S&P 500 rose by 3.4% during the month as the Trump administration promises tax cuts, higher infrastructure spending, and reduced regulation which are expected to positively impact several industries, including banking, industrials and healthcare. This has reinforced the solid performance in the US share market
  • The FTSE 100 however fell by 2.5% after a downward revision of the UK’s growth prospects from 2.2% to 1.4% , as well as an announcement over constitutional reforms in Italy that made investors cautious due to political uncertainty
  • The Nikkei increased by 5.1% in November boosted by a weaker yen that made Japanese exports more competitive.The yen reached an eight month low, impacted by the surging US dollar off the back of Trump’s win. This has benefited exporters including Nissan and Honda, allowing the Nikkei to strive forward as the current lead performer in Asia.
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

Top Deloitte WA Index Movers and Shakers in November included:

  • Aurora Labs Limited (A3D)’s market capitalisation increased by a staggering 174% to $193.6m in the last week of November following speculative trading of the company’s shares leading to an announcement made regarding non-binding negotiations with a major engineering project delivery company. The company also announced an acknowledgement of receipt for a submission of its Initial Product Report with the FDA.
  • Kore Potash Limited (K2P) (formally Elemental Minerals Limited – ELM) posted a 59% increase in market capitalisation from AU$75.8m to AU$120.3m after the company secured US$45m, which will allow Kore’s “significant work programme” to be fully funded. The company also commenced drilling work at two sites anticipating an increase in the total measured reserve of the potash deposit at the Kola Sylvinite Project.
  • Panoramic Resources Limited (PAN)’s market capitalisation increased by 43% from AU$98.6m to AU$141.4m at the end of the month. The company’s share price increased throughout most of November following the company’s decision to spin out Horizon Gold Limited (proposed ASX code: HRN), which will own its existing Gum Creek Gold Project, via a AU$15m fully underwritten IPO capital raise at AU$0.40 a share. The company expects to extend exploration activities at Gum Greek with 14 priority exploration targets.
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