Issue 162 | January 2017

Analysis

WA Index

Issue 163 | February 2017

Welcome to the 163rd 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 28 February, 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 28 February 2017

Commodity review

Commodity prices continued to be volatile in February 2017 as investors and regulators remained uncertain with respect to Donald Trump’s policies and the longevity of China’s recent appetite for increased imports of key commodities such as iron ore and aluminium. 

Gold price movements have been primarily linked to the US economy and the international and domestic policy agendas of the Trump Administration. The price rally seen over the past few months confirms the bullish market for gold with prices increasing by 3.7% to US$1,256.64/troy oz. The Lombardi Letters suggested that gold prices gained against a weakening dollar as investors look to the precious metal as a hedge against political uncertainty across the world. This was reiterated by Patti Domm from CNBC who stated that Donald Trump’s trade and currency comments have driven investors to seek safety in the metal. 

On a not-so-Trump-related topic, nickel and iron ore have seen significant increases during February. Nickel increased by 13.6% to close at US$10,926.50/tonne mainly the result of mine closures announced in the Philippines as part of the ongoing regulation of its mining industry. At the start of the month the Philippines Government ordered the closure of 21 mines based on environmental grounds, which caused prices to soar upon expected reduction in supply. As currently the world’s largest supplier of Nickel, the Philippines is expected to reduce up to half of its annual output. 

Similar to nickel, iron ore has seen an increase of 10.8% in February to close at US$92.50. This was predominantly driven by an increase in demand from China who are the largest purchaser of iron ore. It has been more commercially beneficial for Chinese steel producers to import higher grade iron ore from countries such as Australia in replacement of its own domestic lower grade ore. This also reduces coking coal costs as higher grade ore requires less of the commodity during the steel production process. 

Another commodity driven by the Chinese market is aluminium. Global prices for aluminium have risen over the past 6 months and continued to increase in February, up 6.8% to US$1,919.75/tonne. Despite the possibility of Trump not delivering on his Tax reforms and China tightening their monetary policy, the market still anticipates further price increases as stocks decline.  

The market is however seeing a different story when it comes to the price of crude oil. Prices have stalled due to conflicting supply trends. While OPEC is pushing for broader implementation of a supply cut deal agreed by the cartel and several large external producers, including Russia, output continues to increase as the number of active US rigs rose in February to the highest level since October 2015. This resulted in the crude oil prices remaining relatively stable during February with a marginal increase of only 1.4% to US$56.14/bbl.

Natural gas fell from AU$3.20/mmbtu in January to AU$2.52/mmbtu at the end of February representing a 21.3% fall. An early end to winter in the US has resulted in natural gas prices decreasing as storage levels have declined at a much slower pace than expected. 

Coal has seen a fall in price during February with the price of premium coking coal down by 13.4% to US$155.00/tonne. The movement was attributable to uncertainties around commodity policies in China. According to an article produced by the Financial Times, ‘there is uncertainty surrounding China reimposing the coal producing restrictions. The market is still recovering from customers in China having over purchased inventory due to anticipated weather supply disruptions, however these supply disruptions did not eventuate and therefore there is excess supply currently 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 continued upwards during February as the market capitalisation of Western Australian listed companies increased by 0.95% to close the month at AU$162.7bn.

Deloitte Clients & Markets Partner – Western Australia, Tim Richards, said the iron ore price and financial results announcements helped maintain and strengthen the Index this month.

“The WA Index posted its fourth consecutive month of gains in February. Steady growth in resource and mining stocks followed an optimistic reporting period and continued increases in iron ore prices. Despite these strong factors, investors remained cautious as the markets closed pending President Trump’s budget address to Congress, awaiting the implications of his announced policies.”

Among the major Index players in February:

  • Monadelphous Group Limited’s market capitalisation rose by AU$222.3m (22.8%) following a letter of intent received from Oil Search Limited for a $50m per annum, five-year services contract. Monadelphous shares were further boosted by the declaration of a dividend alongside their half-year results, which suggested an optimistic outlook due to the stabilising environment in the resources and energy sector
  • Westgold Resources Limited’s market capitalisation increased by AU$135.6m (22.4%) after announcing a toll processing and purchase option agreement with RNC Minerals (RNC) at its South Kalgoorlie Operations (SKO). Westgold is set to receive either AU$4m in RNC shares as well as toll processing fees for the access granted, or the option for RNC to outright purchase SKO for AU$80m and award Westgold a 5% option fee in RNC shares
  • Austal Ltd’s market capitalisation grew AU$104.7m (18.8%) off the back of its half year results, delivering strong growth in underlying EBIT. Earnings from the US segment in particular increased significantly from the prior half-year, with orders in place standing at US$3.1bn globally.

All equity markets surveyed increased during the month of February: 

  • The All Ordinaries increased by 1.5% this month, following a predominantly optimistic reporting season for the largest companies on the ASX. Despite disappointing economic data, most sector indices increased during the month, principally mining and resources, but ran out of steam toward the end of the month as the market awaited President Trump’s speech to the US Congress
  • The S&P 500 had the strongest growth of equity markets surveyed in February, with a 3.7% increase, though analysts are concerned this growth was driven solely by the market’s momentum, not underlying value. However investors were not put off as the momentum continued with all but two primary sectors, as financials and energy stocks fell after significant post-election gains
  • The FTSE 100 followed, increasing 2.3% over the month, boosted by gains in some of the markets largest stocks. Unilever shares soared following Kraft’s confirmation of a merger proposal, Coca Cola HBC reported higher year-end profits, and AstraZeneca produced successful late-stage trials of its cancer drug. Furthermore, despite the uncertainty pending President Trump’s US Congress address after UK market close, anticipation of infrastructure and military spending increased share prices for several defence and aerospace contractors
  • The Nikkei remained steady overall for February, finishing 0.4% higher.
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 February included:

  • Summit Resources Limited’s market capitalisation soared by AU$83.9m (197.4%), with a sharp increase correlated to a rally in uranium prices increasing significantly from the low price prevailing at the end of 2016
  • Cardinal Resources Limited’s market capitalisation rose by AU$41.0m (52.9%) following encouraging drilling results at the Namdini Project, as well as an optimistic metallurgical update, with results from the next phase of test work expected to be sufficient to complete a feasibility study
  • Panoramic Resources Limited released its feasibility report for the Savannah mine at the start of the month, boosting its market capitalisation by AU$49.3m (43.4%). The report boasted a ten year mine life with strong nickel and copper production and minimal restart capital requirements given the existing site infrastructure.
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