Deloitte WA Index: Macro Slowdown
11 October 2017: The Deloitte WA Index fell slightly during September as the market capitalisation of Western Australian listed companies decreased by 0.5% to close the month at AU$162.1bn.
Deloitte Clients & Markets Partner - Western Australia, Tim Richards, said the dip last month came from the Index trending with the movement in the All Ordinaries Index.
“Commodity prices broadly weakened over the month, with the threat of slowdown to the Chinese economy. However, macro factors aside, several WA Index players still enjoyed share price growth during September, following encouraging operational results and some strategic agreements being announced.”
Among the major Index players in September:
- South32 Limited regained its position as 3rd within the WA Index based on market capitalisation off the back of an AU$1.76bn (12%) gain during the month. The release of year ended 30 June 2017 results boosted investor confidence as the Company boasted revenue growth of 18% and profit of $1.80bn.
- A landmark lithium offtake deal signed with Chinese car manufacturer Great Wall Motors has propelled the market capitalisation for Pilbara Minerals by AU$436m (79%). The deal fortifies the Stage 2 expansion of its Pilgangoora Lithium Project, as the Chinese car manufacturer intends to produce 500,000 electric and hybrid cars per annum by the early 2020s
- With the price of Tungsten rising ~50% over the past two months and as one of the most actively traded stocks on the ASX during September, the rare earth metals producer Lynas Corporation received a market capitalisation boost, increasing by AU$304m (42%)
- Galaxy Resources released positive assay results from its drilling campaign at its James Bay Project in Canada, which drove market capitalisation up by AU$298m (39%). The now complete 33km diamond drilling campaign was undertaken in order to extend and develop its existing James Bay spodumene resource, and reaffirms the potential of James Bay as a long-life, high-grade spodumene project.
Key commodities surveyed during September:
- Crude oil increased by 11.7% to US$57.86 per barrel at the end of September off the back of increased demand as US refineries resumed production post cyclone Harvey, and sanctions on the Kurdish region threatening supply
- Nickel fell by 9.6% to US$10,415 per tonne as demand from China declined, with stainless steel mill closures a result of the country’s increasing environmental protection
- Iron ore dropped by 20.1% to US$62.30 per tonne, again from China’s environmental protection policies continued effect on steel production, heavily reducing demand
- Copper decreased by 4.6% as the Chinese economy slowed and the country’s credit rating was downgraded, further threatened by tensions surrounding North Korea
- Coking coal fell by 13.2% during the month also as a result of slowing Chinese economic activity, with demand reduced following reductions in steel production.
The equity markets surveyed posted mixed results during September:
- The All Ordinaries slipped 0.5% to 5,745 points at 30 September, with weak trading volumes being the overriding factor in a mixed month for the major players in the mining, energy and financial sectors. The final week of September was one of the quietest for the year, as a result of school holidays and a selection of state public holidays
- An all-time high was reached by the US S&P 500 as it ended its eighth consecutive quarter of growth, up by 1.9% for the month. The index was boosted during September by the Federal Reserve’s hawkish comments regarding monetary policy, as well as an announcement of the Trump administration’s long-awaited tax reform package
- September was a turbulent month for the FTSE 100, losing 250 points in the first fortnight, before clawing back ground to close 0.8% lower than the start of the month on 7,373 points. Two conflicting drivers were responsible for the fall, with revised annual growth for the UK (from 1.7% to 1.5%) weighing the index down despite a weaker pound sterling placing upward pressure on the FTSE
- The Nikkei recorded its best month for 2017 in September, with a weak yen allowing the index to reach a two-year high during the month. Strong earnings and positive risk sentiment continued to outweigh Japan’s geopolitical concerns, in particular the escalation of tensions between North Korea and the US.
The top Deloitte WA Index Movers and Shakers in September included:
- Argosy Minerals has made its second consecutive monthly appearance within Movers and Shakers, with market capitalisation rocketing by AU$128m (106.7%), more than doubling its share price during the month. The lithium explorer’s Rincon Lithium Project in Argentina continued to progress, with positive announcements throughout the month relating to the status of stage 2 development works with Argosy on track to become a strong lithium producer
- Wolf Minerals’ market capitalisation increased by AU$38m (63.6%) during the month. Bolstered by concerns of supply reductions in China, the price of tungsten rose to a 2017 high of US$300/mtu in September. The strength of the tungsten price, as well as improved performance at their Drakelands tungsten mine in England, led to its share price climbing from 5.5c to 9.0c
- Sheffield Resources’ market capitalisation for the month increased by AU$42m (55.4%), as the market responded favourably to an agreement secured with Ruby Ceramics for an initial three-year period, with annual contract extensions to follow. The Indian ceramics company will purchase 6,000 tonnes of premium zircon annually from Sheffield’s Thunderbird mineral sands project in Western Australia.