Commodity review

August has exhibited a positive trend in commodity prices across the board, with investor sentiment lifting and Chinese demand being the key driver. An increase in investment in road and rail networks in China continues to boost the commodity outlook. 

Nickel & Zinc prices stole the show this month with Nickel soaring to its highest level this year, closing at US$11,520 per tonne (13.3% increase). Supply concerns around reduced output from the Philippines (largest exporter of the metal) due to government sanctions as well as bad weather halting mining operations have all continued to support its price advancement. Similarly, Zinc increased by 10.9% as it surged to its highest price in almost a decade, benefiting from Chinese infrastructure development and higher steel prices following capacity cuts in China.

Coking coal also pushed forward during August, increasing by 16.0% to a price of US$189.00 per tonne. The commodity has been relatively volatile over the last few quarters as a result of supply-side issues in China. Iron ore has continued its rebound increasing by 5.4% to US$78.00 per tonne. The recent movement is off the back of Australia’s top 3 exporters announcing their plan to contribute 170 million metric tons of capacity (approximately $10 billion) in order to boost exports to their long-term targeted rates and continue to fuel China’s demand. Similar to coking coal, the positive iron ore price movement is expected to continue into early 2018, with a number of investment banks upgrading their coking coal and iron ore price forecasts.

A crackdown on illegal operations in the Chinese provinces of Shandong and Xinjiang has significantly cut the supply of aluminium from the market (with the potential to eliminate as much as 6.2% of total global output) leading to a 9.1% increase in the aluminium price. So far the crackdown has only affected operations in the aforementioned provinces that were operating with illegal capacity, however further cuts including anti-pollution concerns are still possible, giving the potential for further increases in price of this commodity.

Finally, copper prices increased by 6.4% gaining from China’s stricter environmental measures as a potential ban on copper scrap metal to be implemented by the end of the year was announced. Not only has the metal rebounded recently based on positive economic data from China, but it has also benefited from a weaker US dollar. August saw an expansion in China’s manufacturing activity sustained by an increase in export orders and higher prices.

Commodity and Precious Metal Prices

Performance of WA Index and global indices

WA Index movement

The Deloitte WA Index maintained positive trend during August as the market capitalisation of Western Australian listed companies increased by 3.8% to close the month at AU$162.9bn.

Deloitte Clients & Markets Partner -Western Australia, Tim Richards, said the WA Index has benefited from the positive trend in commodity prices across the board this month with boosted Chinese demand and supply restrictions being the key drivers.

Among the major Index players in August:

• Mineral Resources Limited’s market capitalisation increased by AU$472.0m (20.5%) since 31 July 2017, as the 2017 net profit after tax of AU$201m showed great contrast to a AU$26m net loss from the previous year. Future excitement for the company stems from forecasted earnings growth to be driven primarily from increased output from the Mount Marion and Wodgina lithium mines in WA
• Northern Star Resources Limited has seen market capitalisation increase by AU$489m (18.4%) off the back of reported EBITDA of AU$461.3m, up 16% from last year, after producing 567,578 ounces of gold at an average cost of AU$1,032 an ounce
• Western Areas Limited’s market capitalisation increased by a robust AU$90m (13.9%) during the month, after returning to profitability and planned increased exploration spend in the coming year. The company delivered a net profit of AU$19.3m for the year ended 30 June 2017, a marked turnaround from their AU$29.8m loss in FY16.

The equity markets surveyed posted mixed results during August:

• The All Ordinaries remained steady, recording no movement during August. The market weakened as North Korea’s firing of a missile over Japan put investors on edge, however this was offset by strengthening commodity prices
• The US S&P 500 rose 0.1% during August, indicating a resilient Wall Street despite rising tensions between the US and its Asian allies, as well as Hurricane Harvey, which has devastated the Gulf Coast region in Texas
• The FTSE 100 moved 0.8% higher during the month, off the back of a weaker pound against the dollar and driven by upbeat readings on US job openings. The pound slumped after the figure was released, and helped the FTSE edge higher.

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

The top Deloitte WA Index Movers and Shakers in August included:

• MacMahon Holding Limited’s market capitalisation rose by AU$194.6m (96.5%) following a successful transaction with Indonesian miner AMNT, in which 954 million fully paid ordinary shares were issued as consideration for the acquisition of mobile equipment. The transaction will enable MacMahon to become the life-of-mine mining services provider at the Batu Hijau copper-gold mine in Indonesia, with US$2.9 bn expected revenue over its 14 year life, and US$1.8bn expected revenue over the first five years from commencement of full operations
• Alderan Resources Limited’s market capitalisation climbed AU$69.1m (91.4%) off the back of exciting announcements made during the month boosting investor interest. A review of historical channel sampling results from the historic Cactus mine in Utah confirmed strong results for the copper miner. The company recently acquired further leases and claims north of Cactus with drilling expected to commence in September once all surveys have been complete
• Argosy Minerals Limited’s market capitalisation increased AU$56.73 (89.9%) during August. The company announced funding to complete Stage 2 construction pond works at the Rincon Lithium Project, which is expected to fast-track production of battery-grade lithium carbonate equivalent product to see Argosy become the second ASX-listed lithium producer. Additionally, the company executed a binding investment and off-take agreement with fast-growing Chinese battery company Qingdao Qianyun High-tech New Material Co Ltd.