Issue 158 | September 2016

Analysis

WA Index

Issue 158 | September 2016

Welcome to the 158th 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 31st August, 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 August 2016

Commodity review

Volatility in the US dollar continues to impact commodity prices, with most precious and base metals retreating during the month. Investors have become concerned once more that the US Federal Reserve will increase interest rates later this month, following the release of nonfarm payroll data, a key economic indicator that is expected to support this decision.

On the positive front, crude oil increased by 14.4% in the month of August to a closing price of US$48.56/bbl, as speculation arose yet again surrounding the possibility of an agreement to restrict production at upcoming OPEC talks. Prices were additionally bolstered by a slight increase in manufacturing activity in China combined with the weakening US dollar. The oil price closed just off its highest point for the month after results were released showing greater stockpiling than anticipated in the US.

Tin increased by 5.4% (US$970.47/tonne), to finish the month at a price of US$18,810.00/tonne. This is attributed primarily to increased demand from China together with reduced supply, as China’s environmental inspections at smelters suspended or slowed production, whilst production in Myanmar continues to slow. Additionally, increased demand for tin in emerging energy developments, such as storage for renewable energy and super-capacitors, continued to bolster the price, increasing by 28.9% from the start of 2016.

Copper fell by 6.2% to US$4,595.00/MT, revealing investor concerns that demand is decreasing in China, as the world’s largest consumer of copper starts to sell inventories to other markets in Asia. As demand from China falls, analysts are expecting prices to continue to decline, due to oversupply. The possibility of an increased US interest rate boosting the US dollar has again worried investors which could weaken the copper price further.

The nickel price also retreated during August, with a 7.7% decrease to US$9,775.25/tonne at month end. This follows a price surge in both June and July as the Philippines performed environmental reviews on their mines, shutting down eight so far, and reducing production capacity by approximately 10.0%. The decline this month serves somewhat as a correction to recent price spike, as demand from China’s stainless steel industry remains steady.

The platinum price decreased by 6.5% over the month, finishing at US$1,067.00/troy oz at 31 August 2016, as investor concerns over looming US interest rate hikes threaten overall commodity price sentiment. The precious metal started the month on a high, based on speculation around the introduction of vehicle emissions regulations in China and a looming strike in South Africa as miner’s negotiated wages. The subsequent drop in price, however resulted from increases in supply, particularly from South African production, as the world’s largest platinum producers build to meet production targets following safety and wage negotiation delays.

Silver and gold fell in August by 7.9% and 3.1% respectively, as investors anticipated a US interest rate increase following the release of employment and manufacturing data in September.

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 rose for the third consecutive month in August, up 0.5% to AU$148.9bn. The Index outperformed the ASX All Ordinaries which fell 2.0% as investors digested the raft of reporting season results. 

Deloitte Clients & Markets Partner Western Australia, Tim Richards, said the rising crude oil price and financial results announcements helped maintain and marginally strengthen the Index this month.

“The release of financial results for the period ended 30 June 2016 highlighted that although a number of major WA Index players were under general economic and commodity pricing pressure, overall positive results were achieved, helping to boost share prices and lift the WA Index for the third consecutive month.”

Among major Index players in August:

  • Galaxy Resources Limited’s market capitalisation rose by AU$112m (18.4%) during the month as a result of an off-market takeover of General Mining Corporation Limited (GMM), which saw the company issue 494 million Galaxy shares to GMM shareholders. The company successfully entered the ASX 200, as gold and lithium players reap the rewards of positive sentiment towards these commodities
  • Mineral Resources Limited’s market capitalisation rose by AU$284m (15.5%) following the release of its 2016 results which exceeded analysts’ expectations, with strong profit growth during a year of challenging commodity prices
  • Fortescue Metal Group Limited’s market capitalisation rose by AU$1,462m (10.6%) with investors continuing to be impressed by Fortescue’s cost cutting, healthy operating cash flows and the deleveraging of its balance sheet. Interestingly, Fortescue has outperformed the iron ore price over the past three months with its share price swelling by 64.4% in comparison to a 17.6% increase in iron ore prices
  • Woodside Petroleum Limited’s market capitalisation rose by AU$1,769m (7.9%) as crude oil prices spiked during the month. Share prices were additionally boosted by the release of half-year results, which despite the drop in sales, costs were cut more than expected, plus its Pluto LNG plant upgraded its 2016 production guidance.

All equity markets surveyed posted relatively stable results for August:

  • The All Ordinaries fell by 2.0% with all sectors being affected by the slight decline, with gold miners suffering as global gold prices fell, and resource and energy stocks being hindered by a strengthening US dollar
  • The S&P 500 fell by 0.1% as gains in the technology and financial sector were offset by sluggish factory activity data which coupled with traditionally low trading volumes in August, keeping the index relatively stable
  • The Nikkei posted the biggest improvement, with an increase of 1.9% as the Yen weakened against the US dollar, major export stocks were bolstered and confidence of a near-term US interest rate hike boosted financial stocks
  • The FTSE 100 rose by 0.9% as financial turmoil triggered with the Brexit vote subsided and a potential US interest rate rise towards the end of 2016 was flagged.
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

Top Deloitte WA Index Movers and Shakers in August included:

  • Imdex Limited (IMD) which posted a 67.0% increase in market capitalisation from AU$97m to AU$162m. The uplift in Imdex’s share price mostly occurred early in the month due to a general uplift in mining servicing companies, picking up traction with investors following a difficult period experienced in the past few years. Additionally, the Company released their annual results with their mineral business performing well despite challenging conditions
  • 88 Energy Limited (88E), which posted a 65.2% increase in market capitalisation from AU$132m to AU$218m. The Company’s share price rose off the back of significant operational success during the half year ended 30 June 2016. Notably, the company expanded its footprint by 172,000 acres helping to secure its first mover advantage in the onshore Alaska oil-rich region
  • Ausdrill Limited (ASL), which posted a 61.2% increase in market capitalisation from AU$312m to AU$503m, following the release of their 30 June 2016 financial results which showed a $58m profit, a 133.1% increase on the previous year’s result. Ausdrill additionally forecast a positive outlook, with growth opportunities expected from Africa and Australia, further boosting the share price for the month of August.
Elevator Reflection

Innovation in Mining

Australia 2016

The Innovation in mining Australia 2016 report highlights results on the state of innovation at work in Australia, presenting the innovation landscape as it stands and identifying key innovation drivers and focus areas from which to bring to life the mine of tomorrow.

 

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.

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