WA Index

Analysis

WA Index

Issue 175 | May 2018

Welcome to the 175th 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 April, 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 30 April 2018

Commodity review

The commodity market saw both gains and losses in April. US-Russian sanctions as well as geopolitical tensions in the Middle East caused market concern amongst investors and supply disruptions in certain markets. Iron ore was affected by Australian mine supply issues.

Aluminium prices soared 11.8% during April to US$2,222.00/tonne as the global aluminium market reacted to the US imposed sanctions on Russia alongside a falling US dollar, brought down by the US Federal Reserve holding interest rates steady. Rusal, the world’s second largest aluminium producer, was of particular concern to the market, with the US later considering sanctions relief for the Russian giant in order to ease supply concerns. Supply was further threatened by production cuts from the Norsk Hydro aluminium plant in Brazil as the company battles a dispute at its alumina refinery.

Nickel also responded to the US sanctions, lifting 4.4% to a three year high of US$13,830.50/tonne at the end of April. This, coupled with the ongoing conflict in Syria, drove fears of supply shortages in the nickel market. While no explicit sanctions were directed at nickel producers, attention has turned to Norilsk Nickel, the world’s second largest nickel producer, due to its connections with Rusal.

Cobalt fell by 5.4% to US$88,500.00/tonne in April as a result of market corrections, having achieved a near 10-year high in the previous month. The price of cobalt recovered from a steep correction towards the end of the month, following supply concerns from the Democratic Republic of Congo. Cobalt additionally remained buoyed by strong demand from China as the metal is a crucial element for batteries.

Iron ore prices increased 3.9% to US$66.50/tonne at the end of April, supported by China’s reduction of bank reserve requirements. This move is expected to boost economic activity and improve liquidity, improving steel prices alongside the country’s economic activity. Furthermore, BHP reduced its output forecast by 2% and Cleveland-Cliffs will no longer be part of the direct seaborne iron ore market following the closure of its Australia operations.

The price of coking coal declined slightly by 7.8% to US$178/tonne, as supply recovered from the winter restrictions placed on steel production as Chinese authorities managed air pollution levels. 

Thermal coal pricing increased 5.4% to US$97.25/tonne, upheld by strong demand in Asia. Globally, thermal coal remains the most consumed fuel for power generation, particularly in Asia which consumes more than 70 percent, according to BP’s latest Statistical Review of the World. However, as China moves to impose import restrictions on polluting fuel, thermal coal demand in Asia may be subjected to pressure in months to come. Controls on coal imports have been introduced in several ports in eastern and southern China which places bans from unloading to tightening customs clearance. 

Oil prices increased by 6.5% to US$74.64/bbl due to concerns relating to supply disruption in the Middle East and Venezuela, along with robust demand. Volatility resulted from geopolitical tensions in the Middle East as US and allies launched air strikes on Syria, and Israeli-Iranian tensions build. Furthermore, two Chevron employees have become embroiled in political turmoil in Venezuela.

Key geopolitical developments have placed upwards pressure on global oil prices during April, which has significantly affected global liquid natural gas (LNG) prices by 5.7% to US$7.40/mmbtu at 30 April 2018. As there is no globally integrated market for natural gas, LNG prices are indexed to crude oil prices, which have increased during April. Demand for LNG remains strong as many countries including China have switched to gas through efforts to be more environmentally sustainable.

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 experienced a month of growth in April 2018, as the market capitalisation of Western Australian listed companies increased by 6.5% to close out the month at AU$184.2bn.

Deloitte Clients & Markets Partner - Western Australia, Tim Richards, said: “The WA Index has steadily grown during April 2018, beyond the growth of the broader Australian and global markets. Acquisitions and equity raisings boosted this month’s top performers, along with strong quarterly results announcements and commodity prices bolstered amidst geopolitical tensions raising supply concerns.”

Major index players in April:

  • A successful month for South32 Limited (South32) saw its market capitalisation increase by 15.3% to AU$19.12bn at 30 April 2018, following the announcement of the exclusive option agreement entered into with Inca Mineral’s Greater Riqueza project in Peru, and a strong quarterly report. South32’s March quarter benefitted from strong commodity prices, with a US$477m increase in net cash, after returning US$85m to shareholders in their on-market share buy-back
  • Iluka Resources (Iluka) grew 12.2% to a market capitalisation of AU$4.95bn following advised strong market conditions in both zircon and high grade titanium dioxide. As a result, revenue increased 10% in the March 2018 quarter, and up 22% relative to the first quarter of 2017. Production has further contributed to this favourable result - total zircon, rutile and synthetic rutile production increased by 8% to 182,000 tonnes compared with the quarter to December 2017. Furthermore, net debt reduced by AU$75 million since December 2017
  • Independence Group’s (IGO) market capitalisation grew 12.4% to AU$3.03bn, as nickel prices surged during April, and IGO became Arrow Mineral’s (Arrow) largest shareholder with an 11% interest in the company. An encouraging March quarter showed strong cash generation due to high nickel prices, allowing for debt reduction and a dividend payment. Additionally, IGO invested $1m in Arrow through a private placement, with another $1.36m received in a second tranche equity raising enabling commitment to take place in significant drilling programmes at both the Strickland gold and Malinda Lithium projects.

The equity markets surveyed saw strong results throughout April:

  • The FTSE 100 surged by 6.4% as sterling fell making the UK a more attractive marketplace to invest in equities following political concerns after Amber Rudd resigned as UK home secretary (Pro-EU), and housing secretary Sajid Javic (Pro-Brexit) was named her replacement. The Index was bolstered by M&A activity, led by the merger between Sainsbury’s and Walmart’s UK arm, Asda, which would create the largest UK grocery store chain
  • The S&P 500 rose by a modest 0.3% to 2,648 points following positive earnings reported by 80% of members in the index, surpassing analysts’ expectations. The market continues to be in a tug-of-war between the potential for higher interest rates, inflation counterbalanced by the potential for higher earnings and revenue growth keeping gains to a minimum
  • The All Ordinaries experienced a solid month, having increased 3.5% while the financial stocks bounced back from adverse news from the banking royal commission, as investors saw opportunity for the undervalued banks. Additionally the Australian dollar fell during the month, with renewed political concerns in the Middle East and Chinese manufacturing data showed a moderate decline in April, making Australian exports more attractive for foreign investors
  • The Nikkei recorded a strong month with a 4.7% gain, as investor concerns were reduced around a US-China trade war, after an initial sparring of tariffs last month. There was an increase in investors’ risk appetites following a rebound of technology stocks as a result of substantial earnings and a drop in US treasury yields. Japan’s monetary policy remained steady, while industrial output rose 1.2% to beat forecasts and the jobless rate held at a flat 2.5% in line with expectations.
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 April included:

  • Jupiter Mines had a strong start on the ASX with the completion of its AU$240m initial public offering which included AU$225m institutional allocation and AU$15m allocation to the general public. The IPO was significantly oversubscribed, resulting in one of the largest IPOs in the metals and mining industry over the last decade, bringing Jupiter Mines to a market capitalisation of AU$750.11m at 30 April 2018
  • Tungsten Mining continued its positive momentum from the previous month, as its market capitalisation rose 61.5% to AU$355.85m following the announcement of a AU$20m placement to sophisticated and institutional investors with 75% commitments received, and funds to be used to accelerate development at its Mt Mulgine Tungsten project
  • Atlas Iron (Atlas) has had a prosperous month with a 50% increase in market capitalisation to $278.39m following an announcement that all shares in Atlas would be acquired by Mineral Resources (MRL) via a scheme of arrangement. Atlas shareholders will receive one new MRL share for every 571 Atlas shares held, equating to a 59% premium. Once the scheme is implemented Atlas shareholders will own approximately 8.2% of the total issued share capital of the combined group.
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: May 2018

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