Issue 164 | March 2017

Analysis

WA Index

Issue 164 | March 2017

Welcome to the 164th 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 March, 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 31 March 2017

Commodity review

With the exception of aluminium and US natural gas, key commodity prices lacked the support of supply constraints experienced in February and were down across the board for the month of March.

The monthly movement in gold price was negligible though it was a tale of two halves. Initially gold fell as certainty firmed on the Federal Reserve raising interest rates, which is US Dollar positive and raises the opportunity cost of holding gold. However, gold then recovered in the second half on the Trump Administration’s inability to repeal Obamacare and the resulting fears that Congress may reject other Trump policies on tax and investment.

Iron ore fell 11.4% as sentiment on steel demand turned negative with the introduction of new restrictions on property speculation in China. High iron ore inventory levels in China have also contributed to a cooling off period.

Rising US crude oil inventory levels coupled with increased drilling rig counts which suggest rising US shale-oil production caused Brent crude to fall as low as US$50 a barrel in March. Expectations however that OPEC will rollover current production cuts for a further six months supported a recovery in prices towards the end of the month.

Aluminium was supported as China placed emphasis on environmental concerns and said it would enforce aluminium smelters to cut capacity by 30% over the winter in order to comply with its anti-pollution measures. The commodity eventually landed at US$1,952.25/tonne, up 1.7% at the end of the month.

The Copper price was affected by the potential recommencement of supply from Freeport-McMoRan’s Indonesian operations. Freeport is expected to be granted a special mining license which will allow it to resume its copper exports from the Grasberg mine. This however, was offset by expectations of improved Chinese demand, causing the monthly closing price to remain largely unchanged.

Nickel prices were under pressure during the month, dropping by 8.8% as the Philippines Government allowed 8 producers previously suspended in February to ship out current stockpiles. Previously more than 50% of the mines within the Philippines had been instructed to be closed on the back of an environmental campaign.

Natural gas prices in the US increased by over 21.8% for the month of March as the significance of structural changes in the US energy market such as replacement of coal-fired power plants, higher industrial demand and booming LNG exports have caused a rethink of long term fundamentals.

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 March as the market capitalisation of Western Australian listed companies increased by 1.8% to close the month at AU$165.9bn.

Deloitte Clients & Markets Partner -Western Australia, Tim Richards, said it’s been an interesting month of conflicting market dynamics. US natural gas prices rallied while iron ore prices retreated off recent highs. The US Federal Reserve increased interest rates, the Trump Administration failed to repeal Obamacare and in the meantime, the WA index posted its fifth consecutive month of growth.

“The WA Index was influenced by a multitude of events this month, with March being a rather average month for commodity prices, especially iron ore which came off recent highs. That said, the WA Index has proved itself to be diversified enough to hold its own and even boast modest growth in the face of commodity price challenges and general economic uncertainty.”

Among the major Index players in March:

  • South 32 Limited’s market capitalisation rose by AU$1.4bn (10.8%) despite some volatility during the month, as continued high manganese and coking coal prices bolster cash flows, prompting the company to announce a US$500m share buyback plan
  • Iluka Resources Ltd’s market capitalisation increased by AU$351.3m (12.4%), signalling signs of recovery from an earlier drop at the start of the year as zirconium and titanium oxide prices increased during the month. More importantly Iluka is expected to benefit from BHP’s recently announced large South Flank deposit in the Pilbara. The company’s legacy royalty agreement with BHP could potentially double in value, as an additional 80 million tonnes of iron ore is expected to be covered by the royalty for up to 30 years
  • Seven West Media Limited’s market capitalisation rose by AU$150.8m (14.6%) on regaining analyst support and investor confidence, following a sharp fall in share price in February in response to poor half year results and a highly publicised ongoing court case.

Key commodities surveyed during March included:

  • US natural gas prices posted significant growth of 21.8% during the month off the back of a renewed outlook of longer-term structural imbalances as coal-fired power plants are progressively replaced, LNG exports grow and increasing industrial demand
  • Aluminium prices strengthened as China announced it would require smelters to cut capacity by 30% over the winter heating months in an effort to reduce pollution
  • Copper prices remained relatively stagnant as a result of combining effects from potential resumption of supply from Freeport-McMoRan’s Indonesian operations, offset by expectations of improved Chinese demand
  • Nickel prices were under pressure during the month as the Philippines Government temporarily fuelled supply by allowing 8 producers previously suspended in February to ship out current stockpiles
  • Crude oil prices declined during the month by 5.6% to a price of US$52.98/bbl, following rising US inventory levels and increased drilling rig counts
  • Iron Ore prices fell by 11.4% as steel demand declined in line with the introduction of new restrictions on property speculation in China, coupled with rising Chinese inventory levels.
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:

  • Emeco Holding Limited’s market capitalisation rose by AU$122.5m (279.4%) during March where the company’s share price soared as a result of creditors and shareholders approving Emeco’s merger with Andy’s Earth Movers and Orionstone during the month, with the merger completed on 31 March
  • MMJ Phytotech Limited‘s market capitalisation more than doubled during March, increasing by AU$98.2m (177.0%). This increase follows the announcement that the wholly owned subsidiary of MMJ Phytotech, Satipharm, is now able to sell its Gelpell-CBD Microgell capsules through all pharmaceutical outlets in Germany. In addition, MMJ Phytotech’s Australian distribution partner HL Pharma Pty Ltd received its medical cannabis import licence from the Australian Department of Health during March
  • MOD Resources Limited received commitments to raise AU$14.6m from an oversubscribed share placement during March and the recently discovered 72m copper zone beneath the existing T3 resource in Botswana. As a result, MOD Resources’ market capitalisation increased by 66.9% from AU$78.2m to AU$130.6m.
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.

  • Contact us
  • Submit RFP
  • Our solutions

    Progress your business growth and development

    Take a look at the products and services we offer.

    Financial reporting

    Deloitte has extensive experience in assisting firms of all sizes deal with the governance and compliance issues raised by IFRS to achieve best practice.

    Financial Services

    Our Australian financial services team of more than 500 practitioners has extensive experience in the banking and securities, insurance and wealth management sectors.

    Accounting

    Deloitte Private has immense experience and deep knowledge in regulatory and financial reporting, account preparation, technical advice and accounting system reviews.

Did you find this useful?