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Iron ore fades away

Deloitte WA Index

8 May 2017: The Deloitte WA Index posted its first decline in five months during April as the market capitalisation of Western Australian listed companies decreased by 4.2% to close the month at AU$159 billion.

Deloitte Clients & Markets Partner - Western Australia, Tim Richards, said: “The WA Index has succumbed to its commodity market influences, after nearly half a year of growth. Hard coking coal pricing gains in the wake of Cyclone Debbie were unable to offset the impact of a 16.5% retreat in iron ore pricing this month, driving our resource-heavy WA listed company index lower.”

Among the major Index players in April:

  • Iluka Resources Limited’s market capitalisation rose by AU$326.2m (10.2%) following the 31 March quarterly production report. The report outlined a 118.5% revenue increase compared to the previous period reflecting a significant period-on-period increase in sales volumes. A higher weighted average price for both zircon and rutile was also achieved during the quarter compared to the average 2016 levels
  • Northern Star Resources Limited’s market capitalisation increased by AU$131.9m (5.4%) off the back of a strong quarterly result highlighting costs reductions that assisted in driving up its cash and investments balance by AU$90 million. The company also stated it remained on track to meet FY2017 guidance of 485,000-515,000 ounces
  • Fortescue Metals Group Limited’s market capitalisation decreased by AU$2,861.0m (14.8%) during April. The decline was predominantly as a result of a fall in the iron ore price in April of 16.5%, driven by concerns around high levels of Chinese stockpiles.

Key commodities surveyed during April included:

  • Coking coal increased to US$191.00/tonne from US$161.00/tonne in March, representing a 18.6% increase. This surge was boosted by the disruptions to Australian coal exports caused by Cyclone Debbie, where widespread mine closures in Queensland created shortage concerns
  • Natural gas prices were up by 3.3% to settle at US$3.17/mmbtu on the back of a tighter balance between supply and demand. Demand for gas in April is considered to be seasonally low given no significant heating or cooling needs are required. However, this was counteracted by the increase in demand from several markets such as gas for industry and exports
  • Gold prices rose by 1.7% to close at US$1,267.86/troy oz, driven by heightened geopolitical tensions over North Korea. The weakening of the US dollar against all currencies further edged up gold prices
  • Iron ore on the other hand has taken a fall to close at US$68.50/tonne, representing a 16.5% retreat from last month. The main driver of this fall was concern around multi-year high Chinese stockpiles. This price movement was further echoed by renewed pessimism in Chinese steel markets with doubts persisting over the slowing Chinese government stimulus
  • Crude oil prices have declined for the second consecutive month to close at US$50.66/bbl. This price movement was attributable to the expanding U.S. crude production and higher stockpiles, undercutting efforts by major producers and OPEC to moderate global supply
  • Nickel suffered a 5.6% price dip to close the month at US$9,404.00/tonne due to China’s softening steel industry. Nickel prices hit a 10-month low amidst worries on demand from top nickel consumer, China, after its trade data showed falling imports of the metal which is used in stainless steel production.

The equity markets surveyed posted mixed results during April:

  • The US S&P 500 experienced a 0.9% increase as a result of expectations for a tax restructure plan. Additionally markets showed relatively positive movement after the first round of the France presidential election was consistent with expectations
  • The FTSE 100 fell by 1.6% during the month, dragged down by a stronger pound and falling prices of commodities as well as British Prime Minister, Theresa May, calling for a snap general election
  • The All ordinaries rose 0.7% despite resistance from the energy space as the big banks and Qantas displayed positive results. With the iron ore price however falling by over 16% the all ordinaries struggled to show impressive gains during April
  • The Nikkei rose 1.5% following a boost of confidence from the results of France’s presidential election with a lean towards centrist Emmanuel Macron.

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

  • Australis Oil and Gas Limited’s market capitalisation rose by AU$101.9m (110.5%) during the month as the company’s share price spiked after completing its AU$100m share issue to settle their US Shale acquisition. This involved the acquisition of all TMS assets of Encana Oil & Gas (USA) Inc. The TMS has been identified as one of the few remaining emerging oil shale basins with future potential in which Australis will be the largest holder within the region with 81,000 net acres
  • Talga Resources Limited’s market capitalisation increased by AU$60.0m (66.0%). This increase follows the announcement of positive results verified by an independent test laboratory, on graphene enhanced prototype concrete samples. The results evidently affirmed Talga’s commercialisation strategy in the building and construction sector. In addition to this an announced Joint Ore Reserves Committee (JORC) mineral resource estimate boosted Talga’s confidence surrounding its Nunasvaara graphite deposit
  • Homeloans Ltd’s market capitalisation increased AU$156.1m (1692.3%). This significant increase was sparked by the announcement that its wholly owned subsidiary RESIMAC had priced an RMBS transaction which was due to settle on 13th April 2017. The transaction involved a capital structure with dual-tranche USD 144a notes, giving investors’ choice in duration and cash flow. It has been identified as an essential component of RESIMAC’s 2017 funding plan whilst allowing capacity and pricing support to the company’s recent business activities.

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