Commodity review

The commodity market experienced mixed price movements in October. This month the WA Index Commodities Review focuses on iron ore, nickel, BFO crude oil, LNG Asia, Met coking coal and thermal coal.

Key commodities surveyed during October:

• Iron ore prices have seen significant growth in this period, rising from a September close price of US$69.7 per tonne through to US$76.4 per tonne at 31 October 2018. This 9.6 per cent increase is largely due to the increased Chinese demand for high quality, low emission inputs as Chinese steel mills face stringent emissions caps over the coming winter months. Last winter, China placed caps on steel production. However, this winter local governments are empowered to tackle emissions which is fuelling the use of high-grade iron ore.
• Nickel spot price has slumped 6.5 per cent to US$11,690 per tonne at 31 October 2018. The value of Nickel was strong in recent months due to the ongoing growth in the electric vehicles market, as nickel is a major component in batteries. The announcement of a 700m nickel-cobalt project in Indonesia by the Chinese stainless-steel producer Tsingshan Holding Group shook the bullish nickel market, with claims that the new plant will be able to produce nickel pig iron at a quarter the price of other recent projects.
• Crude Oil has dropped 7.2 per cent to $75.7 per tonne, due to a combination of an oversupply of oil and decreased demand due to continuing trade conflicts between the US and China. Ramped up oil production from Saudi Arabia, Russia and the U.S. throughout October, compounded by decreased demand in the wake of Hurricane Michael, has led to increases in stock levels Early signs of decreased global trade is showing through decreased container and freight rates, due largely to the escalating trade-wars.
• Liquid Natural Gas has seen a large supplier enter the Asia region, leading to a decrease in the price by eight per cent to $10.20/MMBTU. The huge US$40bn Ichthys project in northern Western Australia dispatched its first shipment of gas in October, injecting significant supply to the region. Additionally, Royal Dutch Shell announced a C$40bn LNG Canada project which also plans to enter the Asian market, primarily China, by 2025.
• Coking coal has performed well over the month, seeing a 4.6 per cent increase to US$203 per tonne by the end of October. As Coking Coal is a high quality with fewer impurities when compared to thermal coal, it has seen an increase in demand from China as a preference in the stainless steel production process in the face of upcoming emission cap’s in place over the winter months.
• Thermal Coal has moved in an opposite direction to Met coking coal, dropping 5.45 per cent to US$107.5 per tonne. Throughout October, China has been unofficially restricting thermal coal import in order to provide an advantage for local producers. China states these seaborne import restrictions will lift following the winter period.

Performance of WA Index and global indices

Global indices surveyed showed significant declines in October, with the Nikkei posting the largest fall of 9.1 per cent to close at 21,920 points. The sharp decline in the Nikkei came after volatile trading on Wall Street and the upcoming US congressional elections. Coupled with the slowdown of the Chinese economy that has also been a particular cause for concern, worldwide investors are taking measures to manage risk.

WA Index movement

Major index players in October:

• Saracen Mineral Holdings Limited’s market capitalisation increased by $480m (31.4%) to close above $2.0bn, reflecting investor enthusiasm upon the announcement of favourable September quarter results. The company’s successful implementation of strategies to increase its inventory, cash flow and production reaped results as Saracen Mineral Holdings reported gold sales of 86,623 ounces to generate revenue of $142m for the quarter. With a ramp up in exploration planned for December through utilisation of the $60m FY19 exploration budget, investors are right to be excited.
• Regis Resources Limited saw an increase in market capitalisation of $254m (13.5%) during October to close at $2.1b. Regis proposed a script acquisition in late September 2018 to acquire 100% of Capricorn Metals Ltd. The company subsequently withdrew the proposal. Regis have reserved the right to make a proposal in the future and continues to focus on pre-development activities at Karlawinda, with the project continuing to progress well following the release of the Feasibility Optimisation Study earlier in the year.
• Navitas Limited’s market capitalisation lifted by $215m (13.4%) to close at $1.8b following an announcement that the BGH Consortium, the company’s co-founder and private equity firm, had made a preliminary, conditional and non-binding proposal in early October to acquire 100% of the outstanding shares in Navitas.

Top performers of the month

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

The top Deloitte WA Index Movers and Shakers in October were as follows:

• Bellevue Gold Limited’s market capitalisation soared by $77m (83.7%) during October. The increase follows the company successfully raising $15 million in capital through the placement of 45m shares to sophisticated and institutional investors at 34 cents per share. Funds raised have been ear marked for the continued exploration at the Bellevue Gold Project where the gold resource has recently increased to 1.04m ounces, placing the company in good stead to advance drilling activities.
• Eden Innovations Ltd experienced strong growth during the month, with market capitalisation increasing by $43m (68.7%) to close at $106m. The rise in price stems from the delayed impact of mid-September announcements regarding increased US orders of its EdenCrete concrete admixture. Eden Innovations has enjoyed a surge in demand for the admixture in the US through increased government infrastructure spending.
• Mount Gibson Iron Limited posted a $104m (20.5%) increase in market capitalisation during October as the Company released strong September quarter results. The company’s results boasted sales of 1.1 million tonnes of ore, and increased revenues of $65m. The $20m upturn from the June quarter is largely attributable to higher ore prices throughout the period. Mount Gibson Iron also appointed a new CEO, Mr Peter Kerr, effective as of 1 October 2018, succeeding Mr Jim Beyer.