WA Index

Analysis

WA Index

Issue 176 | June 2018

Welcome to the 176th 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 31 May, 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 Sam Wardle.

As of 31 May 2018

Commodity review

May brought strong gains in the commodity market, with demand leaping around the world for commodities used to produce and store energy including coal, uranium, nickel and cobalt.

Coal prices saw a 11.7% increase in the month to $108.65/tonnes. This increase can be credited mostly to China’s intentions to reduce its merchandise trade deficit of $375 billion by increasing spending on US energy and agricultural exports, such as coal, alongside growing electricity demand. To support an increase in import spending, China has restricted domestic coal production, and global suppliers have also reined in supply, taking advantage of the resulting rise in prices.

The price of nickel increased 8.9% in May to US$15,067/tonne, as supply surged in a nickel industry morphing into two clear supply chains; one supplying the stainless steel sector nickel ore, and the other comprising of higher purity metal to be used in super alloys and lithium batteries. Chinese nickel ore and refined nickel imports have continued to grow in May, following steep growth over the past year, with Indonesia exports rapidly accelerating after the country partly lifted its previous ban on ore exports. As a result Indonesia has overtaken the Philippines as China’s top supplier, with the Philippines’ President issuing warnings to the mining industry as the government becomes more serious about environmental regulations. The International Energy Agency forecasts that the number of electric vehicles is expected to reach 125 million by 2030 compared to just 3.1 million in 2017. Nickel demand from the battery sector is expected to increase by 20% per year over the next decade to average more than 500,000 tonnes by 2027, with the lithium-ion batteries used in Tesla vehicles comprising of 85% nickel.

Uranium’s price increased 8.6% to US$22.65/lb, with rising demand and dependency on nuclear energy as many countries transition to more sustainable forms of energy production. There are 447 nuclear power plants worldwide producing approximately 11% of the world’s energy, while a further 61 reactors are currently being constructed, notably in China, India, UAE and Russia. Investor outlook has additionally improved following the publishing of the US Department of the Interior’s list of 35 commodities, including uranium, which are considered critical to the economic security of the country. Further confidence follows the US government’s consideration of opposing the Nord Stream 2 pipeline between Germany and Russia. This will force Germany to rethink its energy strategy going forward, and may push a transition from LNG to Uranium, which will inevitably encourage surrounding countries such as France and Netherlands doing the same.

Crude Oil prices increased to $77.09/bbl, representing a 3.3% rise from April due to limited supply. OPEC oil output reached only 32 million barrels per day (bpd) in May, the lowest output since April 2017 and down 70,000bpd from the previous month. The biggest decrease in output came from unplanned outages in Nigeria, with Royal Dutch Shell’s Nigerian venture declaring force majeure on Bonny Light crude exports and facing delays on Forcados exports. Further decreases came from Venezuela where an economic crisis has starved the industry of funds, and Libya due to political unrest and power problems following unusual weather.

Cobalt rose 2.3% during May reaching $90,500/tonne due to a supply deficit, with the commodity expected to remain in shortage until 2025. This price increase is exacerbated by stockpiling at different levels of the supply chain, as the sources for new cobalt supply remain years away from production, and demand continues to rise. Cobalt comprises 10% of Panasonic’s lithium batteries resulting in an increase in demand for cobalt from increased electric vehicle production.

Chinese steel production made up more than the rest of the world combined during April (76.7 million tonnes, a 4.8% increase from 12 months earlier). This led to increased stockpiles, and subsequent price weakness in May, with the price for steel iron ore falling 3.8% to $64.00/tonne during the month. Another factor affecting iron ore’s price is the announcement from the USA that new tariffs will be imposed on steel and aluminium imports from Europe, Mexico and Canada. The administration has argued that foreign production has driven down prices and hurt US producers, building trade tension and uncertainty. The United States’ quotas on Brazilian steel exports to the US have also affected prices. Semi-finished steel exports have been capped at 3.5 million tonnes, a 7% decline from 2017, whilst finished steel exports to the US will be capped at 496,000 tonnes.

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 May as the market capitalisation of Western Australian listed companies increased by 1.2 percent to close the month at AU$187bn.

Deloitte Clients & Markets Partner - Western Australia, Tim Richards, said: “The WA Index has strengthened in line with major global Indices, even when faced with political turmoil surrounding North Korea. Rising investor confidence off the back of strong quarterly results, and exciting business developments through acquisitions and internal growth assisted the Index in striving forward during May.”

Major index players in May:

  • Saracen Holdings Limited’s market capitalisation increased by AU$221m (14.3 percent) to $1.8bn during May. The share price soared off the back of strong drill results evidencing thick, high-grade gold and pointing to further mine life extensions at both the Carosue Dam and Thunderbox mines. The resulting increase to gold production, FY18 cash flow, reserves and bullion predictions has boosted investor confidence in the company
  • Seven West Media Limited had an incredible month with market capitalisation increasing by 47.7 percent to AU$1.2bn. The company announced it had achieved the highest ever television market share of any network nine weeks into the ratings season, boasting a 38 percent share. A key contributor to the company’s success is traceable to the broadcasting rights deal for cricket secured until 2024 and AFL until 2022
  • Emeco Holdings Limited exceeded AU$1bn market capitalisation during the month, soaring 42.3 percent. The acquisition of Matilda Equipment, a national equipment rental business, was announced providing Emeco niche rental services to complement the existing fleet of heavy earthmoving equipment.

The equity markets surveyed posted mixed results during May:

  • The US S&P 500 recorded its best month since January, increasing by 2.2 percent. The Trump Administration’s trade war with China and denuclearisation of North Korea created uncertainty in the market. However, volatility in Europe and Italy’s political turbulence led investors to find solace in the world’s largest equity market and the safe haven of the US dollar
  • The FTSE 100 continued its growth, also rising by 2.2 percent during the month. The US-China trade truce aided by a weaker pound assisted the FTSE 100 to rise to new heights. In addition, consumer confidence in the market was signalled by the Bank of England announcing UK consumers borrowed over £1.8bn in April
  • The All Ordinaries finished May 0.9 percent higher than April, coming within half a point of a 10 year high during the month. The heights of early May were corrected towards the month’s end as geopolitical tensions and poor performance from the banking sector resulted in a decrease to the index
  • The Nikkei faced a difficult month, falling 1.2 percent during May. The only index surveyed to decrease during the month, the Nikkei felt the brunt of trade tensions between the US and China, uncertainty over North Korea and the political struggles in Italy which all contributed to the poor result.
LED board

Top performers of the month

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

Top performers of the month

Top performers of the month

Top performers of the month

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 May included:

  • Kangaroo Resources Limited increased market cap by AU$106m (147.6 percent). Investor interest grew as the release of its March 2018 quarterly activities report boosted investor intrigue as the report detailed drilling contractors had been finalised for the Pakar North concession project and that drilling will commence in Q2 of 2018
  • Botanix Pharmaceuticals experienced a 48.6 percent increase in market cap to AU$126.7m, primarily due to the announcement that its investigational new drug application for acne treatment drug BTX 1503 was approved by the Food and Drug Administration. The approval allows Botanix to commence phase 2 of trials of BTX 1503
  • Kogi Iron Limited increased its market capitalisation by 65.2 percent to AU$118.1m through May. The company’s share price rise is the result of the release of glowing results for the quarter ended March 2018. The success of a private placement raised AU$2m in the quarter, as well a hugely effective share purchase plan raising AU$0.9m. The funds are budgeted to fund test work activities and provide working capital for the growing business.
Elevator Reflection

WA Index Feature Articles

CFO Sentiment | Edition 4

CFO optimism continues to hold strong, bolstered by upbeat economic outlooks – at home and in Europe and the United States. Paired with reduced financial volatility, Australia’s top finance executives have increased their appetite for risk. Despite this positive outlook however, CFOs are concerned about the impact of new regulatory changes as well as what emerging technologies like artificial intelligence might have on their bottom line.

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

Published: June 2018

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