Deloitte WA Index
12 June 2017: The Deloitte WA Index declined for a second month during May as the market capitalisation of Western Australian listed companies decreased by 2.3% to close the month at AU$155.4bn following a 4.2% decline in April 2017. This brings the latest three months to a total decline of 4.6%.
Deloitte Clients & Markets Partner - Western Australia, Tim Richards, said: “The WA Index has suffered another loss as a result of the general downward trend in commodity prices. Notably, iron ore fell 15.3% as China’s ports reached a record high since 2004 in terms of stockpile levels, and coking coal dropped by 18.9% as the supply impacts of Cyclone Debbie were found to be overestimated.”
Among the major Index players in May:
- Automotive Holdings Group Limited’s market capitalisation decreased by AU$262.0m (-21.2%), as sales and earnings have struggled amidst difficult conditions within Western Australia’s new vehicle sales market, which has now declined 10% so far in 2017. This decrease in market capitalisation has been driven by a downgrade in its operating profit forecast to an estimated AU$87m-AU$89m, down from an expected AU$97m
- Saracen Mineral Holdings Limited has seen its market capitalisation increase by AU$96.0m (12.8%). This was supported by the announcement of strong drilling results which highlighted the potential to grow production and mine life at both Carosue Dam and Thunderbox. The company is on track to achieve a 300,000 ounce per annum production rate this quarter
- Northern Star Resources Limited’s market capitalisation increased by a robust AU$264.2m (10.3%) as it announced that planned cost savings had been achieved, and would contribute to maintaining Northern Star’s reputation for cost-saving production at high margins. Although the gold price has remained stable with minimal movement at the end of May, it is speculated the commodity may break through its long-term resistance level in the near future.
Key commodities surveyed during May included:
- Nickel fell by 3.5% from US$9,404.00/tonne to US$9,072.00/tonne on the back of reduced global demand and supply concerns. Demand from stainless steel mills in China has weakened, while there are concerns of oversupply generated from Indonesia and the Philippines
- Iron ore price dropped again falling 15.3% to US$58.00/tonne. This decrease has manifested as a result of lacking sentiment surrounding growth outlook, and large stockpile levels existing in China
- Uranium price had seen gains in early 2017 due to announced supply cuts in Kazakhstan, however the commodity is now experiencing some reversal of these gains with the uranium price falling 5.5% to US$21.50/lb. A new joint venture between Kazakhstan and China has been executed which will allow Kazakhstan to produce nuclear fuel for Chinese power plants in 2019
- Natural gas is down 3.8% in May to US$3.05/mmbtu due to fears of oversupply with near-record production levels and further supplies emerging. The Permian Basin on the Texas-New Mexico border is becoming a significant source of new natural gas with swelling output making it more difficult to control supply
- Coking coal saw a decrease of 18.9% to US$155/tonne as the impact of Cyclone Debbie has begun to unwind and supply impacts have proven to be less dramatic than first expected.
The equity markets surveyed posted mixed results during May:
- The US S&P 500 has been buoyed by optimism off the back of a jump in the price of US crude oil prices, as well as being reflective of a pro-growth Trump agenda. These strengthened the Index by 1.2% in May
- The FTSE 100 rose by 4.4%, with an extended weakness in sterling benefiting British exporters. Consumer confidence edged up to a four-month high, having beaten all forecasts, which combined with inflation following last year’s Brexit vote leading to increased retail earnings
- The All ordinaries dipped by 3.1% following the announcement in the 2017 Federal Budget that a six-basis point levy will be imposed on bank’s liabilities, cutting bank earnings forecasts by 4-5%. A renewed weakness in the Australian dollar has further contributed, compounded by declines in iron ore and metallurgical coals prices
- The Nikkei increased by 2.4% following a number of positive domestic factors within the Japanese economy. It was announced in May that the first quarter of 2017 realised 2.2% of economic growth, whilst manufacturing activity rose for the ninth consecutive month. The US dollar strengthening against the Yen has further contributed to the Nikkei’s performance this month.
The top Deloitte WA Index movers and shakers in May included:
- Danakali Limited’s market capitalisation rose by AU$41.2m (28.1%) following an announcement that the optimisation phase of their front-end engineering design has been completed, in addition to an increase of over 10% expected potash output capacity. A placement to raise AU$12.25m was announced to continue positive advancement of the Colluli Potash project, which further increased market capitalisation
- Wellard Limited’s market capitalisation increased by AU$20.2m (25.0%). In order to strengthen the company’s balance sheet, a number of capital raisings were approved, including the issue of 25 million shares, a fully underwritten non-renounceable rights issue to raise approximately AU$19.7m, and the issue of US$20.0m in convertible notes
- Breaker Resources NL’s market capitalisation increased AU$16.8m (23.1%) off the back of confirmation that they will be taking part in the Federal Government’s Exploration Development Incentive, which has encouraged shareholder investment. The company has announced that the latest results of resource drilling have been positive, with an upgraded quality of gold discovery positively impacting share price.