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A mixed bag

Deloitte WA Index

10 April 2017: The Deloitte WA Index strengthened during March as the market capitalisation of Western Australian listed companies increased by 1.8% to close the month at AU$165.9bn.

Deloitte Clients & Markets Partner - Western Australia, Tim Richards, said it’s been an interesting month of conflicting market dynamics. US natural gas prices rallied while iron ore prices retreated off recent highs. The US Federal Reserve increased interest rates, the Trump Administration failed to repeal Obamacare and in the meantime, the WA index posted its fifth consecutive month of growth.

“The WA Index was influenced by a multitude of events this month, with March being a rather average month for commodity prices, especially iron ore which came off recent highs. That said, the WA Index has proved itself to be diversified enough to hold its own and even boast modest growth in the face of commodity price challenges and general economic uncertainty.”

Among the major Index players in March:

  • South 32 Limited’s market capitalisation rose by AU$1.4bn (10.8%) despite some volatility during the month, as continued high manganese and coking coal prices bolster cash flows, prompting the company to announce a US$500m share buyback plan
  • Iluka Resources Ltd’s market capitalisation increased by AU$351.3m (12.4%), signalling signs of recovery from an earlier drop at the start of the year as zirconium and titanium oxide prices increased during the month. More importantly Iluka is expected to benefit from BHP Billiton’s recently announced large South Flank deposit in the Pilbara. The company’s legacy royalty agreement with BHP Billiton could potentially double in value, as an additional 80 million tonnes of iron ore is expected to be covered by the royalty for up to 30 years
  • Seven West Media Limited’s market capitalisation rose by AU$150.8m (14.6%) on regaining analyst support and investor confidence, following a sharp fall in share price in February in response to poor half year results and a highly publicised ongoing court case.

Key commodities surveyed during March included:

  • US natural gas prices posted significant growth of 21.8% during the month off the back of a renewed outlook of longer-term structural imbalances as coal-fired power plants are progressively replaced, LNG exports grow and increasing industrial demand
  • Aluminium prices strengthened as China announced it would require smelters to cut capacity by 30% over the winter heating months in an effort to reduce pollution
  • Copper prices remained relatively stagnant as a result of combining effects from potential resumption of supply from Freeport-McMoRan’s Indonesian operations, offset by expectations of improved Chinese demand
  • Nickel prices were under pressure during the month as the Philippines Government temporarily fuelled supply by allowing eight producers previously suspended in February to ship out current stockpiles
  • Crude oil prices declined during the month by 5.6% to a price of US$52.98/bbl, following rising US inventory levels and increased drilling rig counts
  • Iron Ore prices fell by 11.4% as steel demand declined in line with the introduction of new restrictions on property speculation in China, coupled with rising Chinese inventory level
  • Gold prices remained steady, falling in the first half of March as a result of the Federal Reserve raising interest rates, however recovering in the second half of the month as the Trump Administration failed to repeal Obamacare.

The equity markets surveyed posted stable results during March: 

  • The All Ordinaries made the strongest gains amongst all markets surveyed, with a 2.5% increase during the month. The market suffered a week before close, dropping dramatically as investors looked to Wall Street, echoing the fears that President Trump will fail to deliver on tax cuts as promised. The index rebounded thereafter as the big banks hiked mortgage rates while the regulatory crackdown eases concerns around the housing market bubble
  • The FTSE 100 experienced volatility throughout the month as investors remained uncertain on the implications of Brexit and President Trump’s ability to deliver promised policies. Overall, the Index has risen by 0.8% during the month, largely attributable to the weakened pound, as approximately 75% of Index revenue is generated overseas
  • The S&P 500 finished the month in line with its start position amidst the turmoil of events occurring during the month. Investor sentiment improved following better than anticipated GDP growth in in the fourth quarter, and the Federal Reserve’s interest rate rise. However, this confidence was deterred by the fall in oil prices and shares in the utilities and healthcare sectors as uncertainty continues to surround health care reform under the Trump administration
  • The Nikkei dropped by 1.1% over the month following adjustments to share prices ex-dividend late in the month, offsetting previous gains from strong investor sentiment surrounding US economic data.

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

  • Emeco Holding Limited’s market capitalisation rose by AU$122.5m (279.4%) during March where the company’s share price soared as a result of creditors and shareholders approving Emeco’s merger with Andy’s Earth Movers and Orionstone during the month, with the merger completed on 31 March
  • MMJ Phytotech Limited‘s market capitalisation more than doubled during March, increasing by AU$98.2m (177.0%). This increase follows the announcement that the wholly owned subsidiary of MMJ Phytotech, Satipharm, is now able to sell its Gelpell-CBD Microgell capsules through all pharmaceutical outlets in Germany. In addition, MMJ Phytotech’s Australian distribution partner HL Pharma Pty Ltd received its medical cannabis import licence from the Australian Department of Health during March
  • MOD Resources Limited received commitments to raise AU$14.6m from an oversubscribed share placement during March and the recently discovered 72m copper zone beneath the existing T3 resource in Botswana. As a result, MOD Resources’ market capitalisation increased by 66.9% from AU$78.2m to AU$130.6m.

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