WA Index

Analysis

WA Index

Issue 172 | February 2018

Welcome to the 172nd edition of the Deloitte WA Index, a monthly review of Western Australian stocks and indices.

Download the list of WA’s top 100 listed companies, as of 31 January, explore the sections below and if you don’t currently receive our WA Index, please register to be added to our distribution list.

Highlights

If you have any questions in relation to the Deloitte WA Index please contact Sam Wardle.

As of 31 January 2018

Commodity review

The commodity market has generally seen increased prices since December, supported by a weaker US dollar. This month the WA Index Commodities Review focuses on nickel, cobalt, coal and iron ore.

The price of nickel increased 4.8% in the month of January to US$13,317/ tonne due to tight supplies but strong demand in China, alongside positive outlook in its lithium battery usage. China accounts for about half of the global consumption of the metal, with imports looking to have doubled in December compared to a year earlier and set to continue to rise. On the supply side, there have been several factors making the market nervous. First Quantum Minerals noted their nickel output dropped 24 percent last year due to its Ravensthorpe mine closure in September. Further, a cyclone at the Ambatovy nickel and cobalt mine in Madagascar has halted production during the month. In contrast, supply outlooks are becoming more positive as production is set to increase from Independence Group’s Nova Nickel Mine and the first stage of production from BHP Nickel West’s Nickel Sulphate facility at Kwinana. The Australian Federal Government’s office of the chief economist has echoed the markets recent optimism, revising nickel forecasts upward in the month. The revision is based off solid demand for nickels standard usage in stainless steel, as well as its long term demand in battery storage technology for electric vehicle or long-life battery markets. The nickel price has also been supported by the decline in the US dollar, making US denoted currencies more attractive to holders of other currencies.

The price of cobalt increased 6.2% to US$79,868 per tonne at 31 January 2018 as a result of supply concerns stemming from legislative changes in the Democratic Republic of Congo, a major producer of cobalt, and the heightened demand from battery markets. In early January, the Democratic Republic of Congo announced they were considering more than doubling royalties on cobalt. Later in the month lawmakers in the country voted for an immediate lifting of a provision exempting licence holders from compliance with the new code for 10 years. These changes will subject companies to higher royalties as well as a new 50% tax on so-called super profits (income resulting from a commodity price 25% above levels included in a project's bankable-feasibility study). These new laws have caused uncertainty around how this will likely impact supply of the metal.

Coking coal and thermal coal moved in opposite directions this month with the coking coal price decreasing slightly by 1.6% while the thermal coal price increased by 5.4%. The increase in thermal coal prices was due to tight supplies and heightened demand from Asian markets. Strong manufacturing activity and tight supply due to a lack of new thermal coal mines accounting for the increase. The thermal price was also supported by the loosening of restrictions to assist China in meeting a winter fuel shortage in some regions. For coking coal, high domestic coking coal prices in China made buyers uneasy, alongside transportation of thermal coal being given priority.

The iron ore price fell marginally by 0.5% this month, to US$74 per tonne. The lower iron ore price is a result of reduced demand from steel mills and the construction sector in China, attributed to the colder conditions in many northern provinces. Impending Chinese New Year celebrations additionally appear to have slowed down the iron ore market. A new emission license and environmental tax law that came into effect during the month has placed further compliance pressure on steel mills, which could continue to suppress demand beyond January.

Commodity and Precious Metal Prices

Select above image to enhance the Commodity and Precious Metal Prices
Select above image to enhance the Commodity and Precious Metal Prices

Performance of WA Index and global indices

Select above image to enhance the Performance of WA Index and global indices
Select above image to enhance the Performance of WA Index and global indices

WA Index movement

Select above image to enhance the WA Index movement
Select above image to enhance the WA Index movement

The Deloitte WA Index climbed marginally higher in the first month of 2018, as the market capitalisation of Western Australian listed companies increased by 0.48% to close out January at AU$181.83bn.

Deloitte Clients & Markets Partner - Western Australia, Tim Richards, said: “With the WA Index inching higher in January, this marks the fourth month of continuous growth. It is a busy month for investors sifting through quarterly reports and results announcements. In the midst of the ASX slipping slightly, this month has seen some of the resources-focussed heavy-hitters on the Index announce strong production results. Investors have reacted favourably to these companies meeting, or in some cases exceeding, consensus expectations.”

Among the major index players in January:

  • A successful month for South32 Limited saw its market capitalisation increase by 9.5% to AU$19.79bn, off the back of strong demand and production for the half-year. Production forecast for manganese operations in South Africa has been lifted by 8% for the remainder of the year, having been already up 16% for the first half. Meanwhile, guidance has been maintained for all other commodities, with these having met expectations for the period
  • Independence Group NL has ridden the wave of growing demand for electric vehicles with market capitalisation increasing by 5.7% for the month nudging it to AU$2.95bn. Investors reacted positively to the group meeting guidance for the half-year ended 31 December 2017, amidst increases in the price of nickel and cobalt over the same period of 4.8% and 6.2%, respectively. Optimism surrounds the Group given it is well placed to capitalise on the shift in demand towards lithium-powered batteries, as a provider of key components nickel and cobalt
  • Sandfire Resources NL grew by 4.1% during the month as prospective drilling activities announced in early January at the Monty Mine were compounded by robust quarterly results. The copper miner is on track to meet full-year guidance of 60-63,000 tonnes, and investors were encouraged by Q2 production growth.

The equity markets surveyed saw mixed results throughout January:

  • The All Ordinaries began the year on a disappointing note, falling 0.3% to 6,146 points at the end of January. Lower-than-expected CPI data has allayed apprehension of impending RBA rate hikes, and provided a boost to confidence as a result. However, an Australian dollar up 3.4% through the month has created concern for Australian exports and their attractiveness to foreign buyers. A global retraction in bond yields has taken its toll on the ASX this month as well, and so amongst the worst performers on the market in January were the utilities sector (down 4.5%) and real estate (down 3.3%)
  • The US S&P 500 surged 5.6% on optimism around interest rates beginning to rise from historic low levels in the near-term. Positive economic indicators have buoyed the US economy, including employment (and wage) growth, increased manufacturing output, and lofty consumer confidence. Increased earnings resulting from US corporate tax cuts have fuelled these conditions, and has led to further optimism for these trends to continue for the remainder of 2018
  • The FTSE 100 lost 2% in January to 7,534 points, struggling to make ground in the face of a strong British pound and poor results from some of the heavyweights on the Index. With the pound experiencing its strongest month in eight years, this makes exports out of EU countries more attractive for overseas investors than domestic UK exports. The decrease in share price of several large players has seen the FTSE struggle in January
  • The ASEAN manufacturing PMI (increasing by 50.2 points) has been the story of the month for the Nikkei in January, indicating expansion of the economy. The Nikkei rose by 1.5% to finish the month at 23,098 points. Although the overriding indicator has been the growth in both output and total orders received, export sales have decreased in December and January. With forecasts for output throughout 2018 being optimistic, and confidence is now at a one-year high.
LED board

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

Select above image to enhance the Top performers of the month
Select above image to enhance the Top performers of the month

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

  • Market capitalisation of Base Resources Limited shot up 56.5% to AU$315.7m, during a month that saw the African mineral sands producer complete a AU$100m capital raising in order to contribute to the purchase of the Toliara Sands Project. Record revenue per tonne throughout Q2 of US$323 per tonne was also announced, as supply shortages have resulted in significant increases in the sales price of zircon
  • Progress to reserve and resource positions have seen Australis Oil and Gas Limited’s share price increase by 59.6% during January. An independent assessment of existing wells has yielded promising results, which has been well received by investors. This assessment has suggested known resources, subject to prevailing oil prices, will transfer to reserves, within a timeframe of five years to development
  • Peel Mining Limited also experienced a fruitful month, its market capitalisation climbing 49.1% to AU$145.2m. Substantial shareholder Hampton Hill Mining has shown confidence by extending its interest in the company through Peel’s recent placement. Assay results revealed mineralisation of zinc, lead, silver and gold at its Southern Nights project to be extensive and high-grade in nature.
Elevator Reflection

WA Index Feature Articles

2017-18 Western Australian Budget Briefing Note

The new State Treasurer, Ben Wyatt, handed down his first Budget on 7 September 2017. Few WA Treasurers have inherited a worse set of books. The new State Government has had to make a number of difficult decisions to continue the process of repairing the WA State Budget.

Download the full report.

Published: February 2018

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If you have any questions in relation to the Deloitte WA Index please contact Angela McIlroy.

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