WA Index

Analysis

WA Index

Issue 173 | March 2018

Welcome to the 173rd 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 Sam Wardle.

As of 28 February 2018

Commodity review

Battery metals have further consolidated gains of prior months whilst iron ore and coking coal have managed to defy falling global commodity prices among the selling wave that washed over Wall Street in early February. The downward trend continued for both Natural Gas and Uranium whilst the Crude Oil price fell on the back of high US inventory levels.

Iron ore strengthened by 8.1%, to US$80 per tonne, reaching its highest level in six months on the back of strength in Chinese steel prices. An order issued by the Tangshan city government for blast furnace steel mills in its jurisdiction to reduce utilisation rates by 10-15% from March to November 2018 has seen bullish iron ore prices in February as construction sites in Northern China have ramped up production.

Coking coal price increased by 5.8% to US$201 per tonne. Transport disruptions due to China’s heavy snow have fuelled a rally in the coking coal price, bolstered by reduced output as production slowed as a result of the Lunar New Year celebrations that started mid-February. Further, concerns around Australian production have also increased prices, as reports of heavy rains in Queensland threaten to disrupt shipments.

The price of nickel increased by 3.2% to US$13,744 per tonne in February, further consolidating considerable gains experienced in January. The increase has been fuelled by declining production as the Australian Ravensthorpe mine remains shut since September 2017 and the Ambatovy mine in Madagascar remains closed since January 2018. Continued demand for nickel use in battery production has kept the metal in demand.

Cobalt increased by 1.4% to US$81,000 per tonne as a beneficiary of bullish global demand for lithium. Reports of Apple entering into talks to secure long-term supplies of cobalt directly from cobalt miners amid fears of a looming shortage attributable to what has been coined the electric vehicle boom, has seen the metal’s price increase across February.

Crude oil decreased by 4.3% to US$66 per barrel, reaching sub-US$60 levels for the first time in 2018 following record US crude oil production and increased inventory levels as at 28 February 2018. The decrease has been further aided by higher than expected gasoline inventories and the appreciating US Dollar, which reached a two-month high at the conclusion of February.

The natural gas price plunged by 22.5% to US$2.59 per MMBtu, hitting its lowest level since June 2016, with US demand set to sink further during the coming spring season in April and May. Open interest in the natural gas futures market has declined from over 1.53 million contracts in early December to its current level of just under 1.365 million contracts. The natural gas rig count rose by two during February to a total of 179, as natural gas production and inventory levels have continued to exert downward price pressure. The decline in prices also came as a result of warmer weather in the middle of February, especially in the Northeast region of the US, which saw the price of natural gas fall from $2.73 to $2.51 between February 7 and February 14, as a result of a fall in the demand for gas used in heating.

Uranium reached near decade lows having fallen by 6% to US$22/lb amid uncertainty regarding the commodity’s future role in global energy, prompting the world’s biggest producers in Cameco (Canada), Kazatomprom (Kazakstan) and Areva (France) to cut production in recent months. The fall in the commodity’s price has been expedited by uncertainty arising from the current review of US uranium export policy.

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

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

WA Index movement

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Select above image to enhance the WA Index movement

The Deloitte WA Index retreated during February as the market capitalisation of Western Australian listed companies decreased by 3.4% to close the month at AU$175bn.

Deloitte Clients & Markets Partner - Western Australia, Tim Richards, said: “The WA Index has succumbed to its global market influences this month. A fall in China’s manufacturing sector has driven this decline, as well as speculation of an interest rate increase in the US causing investors to lose confidence. The announcement of a tariff on steel and aluminium imports in the US added uncertainty to the global commodity market”.

Among the major index players in February:

  • Saracen Mineral Holdings Limited’s market capitalisation rose by AU$106m (8.7%) to AU$1,317m following the release of a report announcing high grade drill results at Carosue Dam. In particular, drilling at its Karari mine has returned multiple thick high grade extensional results, suggesting the entity is on track to establish an extra 10-year mine life by leveraging existing plant infrastructure
  • Northern Star Resources Limited’s market capitalisation increased by AU$302m (8.6%) to AU$3,793m in the month, off the back of revenue growth that assisted in driving up its cash and investments balance by AU$56million. The company also declared a AU$0.045 fully-franked dividend distribution. Overall Northern Star has continued to perform well, reaching its targets in gold production while maintaining a low cost base and no debt
  • Seven West Media Limited’s market capitalisation increased by AU$98m (11.5%) from AU$851m to AU$949m during February. The company announced its contract with Southern Cross Austero will be extended for a further three years, and released its half yearly results triggering a spike in share price.The results confirmed cost cutting initiatives were continuing with earnings before interest and taxes up by 7.2% compared to the prior year and the group profit before tax increasing despite a reduction in revenues.

The equity markets surveyed declined during February:

  • Following a volatile month, the US S&P 500 experienced a 3.8% decrease as a result of congress shutting down over budget disputes, and concerns over the rise of inflation at the beginning of the month. After an initial dive the index recovered throughout the rest of the month, albeit cautiously amidst rising speculation interest rates could increase to combat higher inflation. Further uncertainty arose at the end of February when President Trump announced a tariff on steel and aluminium
  • The FTSE 100 fell by 4% due to global stocks becoming increasingly sensitive to the possibility of the Fed Reserve increasing US interest rates, as well as fears for implications of the new US steel and aluminium tariffs. In addition, sterling fell following the British Prime Minister’s speech on changes for a post-Brexit UK
  • The All ordinaries decreased by 0.5% in reaction to speculation over the US interest rate increase and inflation. Furthermore, growth in the Chinese manufacturing sector decreased as business activities were disrupted due to the Lunar Chinese New Year
  • The Nikkei dropped 4.5% following concerns over inflation and the possible US interest rate increase. The Japanese market was impacted by the sentiment of Wall Street, whilst the euro’s weakness against the yen hit companies as Japanese industrial output fell more than expected.
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 February included:

  • Paladin Energy Ltd’s market capitalisation rose by AU$85m (229.8%) as the company’s share price spiked after the reinstatement of quotation and shareholders being able to trade their shares again. This followed Paladin entering into a deed of company arrangement and the completion of its company restructure
  • Tungsten Mining NL also had a prosperous month, with market capitalisation rising AU$178m (160.0%) to AU$289m. This increase follows the announcement of positive results - a significant tungsten-molybdenum mineralisation intersection during drilling
  • New Century Resources Limited’s market capitalisation increased AU$162m (35.9%) from AU$452m to AU$614m. This significant increase was sparked by the announcement of the execution of a long-term gas supply agreement with Santos for power supply with an estimated contract value of AU$100m. Moreover, the company announced a binding term sheet for a new 5.5 year offtake agreement covering 600,000 tonne of zinc concentrate produced by Century Zinc Mine in Australia.
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.

Download the full report.

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

Published: March 2018

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