Issue 166 | May  2017

Analysis

WA Index

Issue 166 | May 2017

Welcome to the 166th 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 May, 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 Angela McIlroy.

As of 31 May 2017

Commodity review

The month of May saw a continued downward trend in commodity prices with Nickel, Iron Ore, Uranium, Natural Gas and Coking Coal all suffering losses during the month.

Although manufacturing data was positive for China during May, the Iron Ore price dropped again, falling 15.3% to US$58.00/tonne. This decrease has manifested as a result of lacking sentiment surrounding the growth outlook and large stockpile levels existing in China. China’s ports recently held a record high 136.6 million tonnes of iron ore stocks, being the largest volume since 2004 when it was first tracked by consultants SteelHome.

Uranium prices saw gains in early 2017 due to announced supply cuts in Kazakhstan, however the commodity is now experiencing a 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.

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. Cyclone Debbie had previously ramped up coking coal prices as a result of supply concerns and with these concerns not eventuating some members of the coking coal industry have responded by looking to move away from traditional quarterly set contract prices, and instead to pricing close to the daily market. Cyclone Debbie also emphasised the geographical risks of coking coal mining in Australia and the impacts this has on price, with steelmakers such as JFE Holdings Inc in Japan aiming to offset price risks by diversifying their purchasing outside of Australia.

Nickel plunged by 3.5% from US$9,404.00/tonne to US$9,072.00/tonne on the back of reduced global demand and excess supply concerns. Demand from stainless steel mills in China has weakened, while there are concerns of oversupply generated from Indonesia and the Philippines. Since January Indonesia has relaxed its ban on exploring nickel ore which has enabled Indonesian producer PT Aneka Tambang to ship a total of 165,000 tonnes of nickel ore to China in its first batch since the relaxation of the ban. In addition to this they have obtained a licence to export 2.7 million tonnes of nickel ore. PT Aneka Tambang was the world’s largest nickel ore supplier prior to the ban implemented in 2014.  Meanwhile in the Philippines the mine closures previously ordered by the former environmental minister Regina Lopez, now appear to be unlikely given that she has been removed from her role.The Chamber of Mines of The Philippines have stated that they would seek to undo her measures when a new minister was in position.

Natural Gas is down 3.8% 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 and therefore the price. Where previously a tighter balance between supply and demand was expected for the future, the new image of cheap gas from the Permian Basin, as a free by-product of the new oil wells in the region is too productive to pass up.

Commodity and Precious Metal Prices

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Select above image to enhance the Commodity and Precious Metal Prices

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Performance of WA Index and global indices

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

WA Index movement

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The Deloitte WA Index declined further 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 yet 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 2014 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%) since 31 April 2017, as sales and earnings have struggled amidst difficult conditions within Western Australia’s new vehicle sales market, which has now declined 10% YTD in CY2017. This decrease in market capitalisation has been driven by a downgrade in its operating profit forecast to an estimated $87m-$89m, down from an expected $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. They are on track to achieving a 300,000oz per annum production rate this quarter
  • Northern Star Resources Limited’s market capitalisation increased by a robust AU$264.2m (10.3%) in which it has been 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 that the commodity may break through its long term resistance level in the near future.

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 the GBP 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 6-basis point levy will be imposed on bank’s liabilities, cutting bank earnings forecasts by 4-5%. A renewed weakness in the AUD 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 USD strengthening against the Yen has further contributed to the Nikkei’s performance this month.

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LED board

Top performers of the month

Western Australian top performers over the past month by growth in market capitalisation

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Select above image to enhance the Top performers of the 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. 

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Elevator Reflection

WA Index Feature Articles

WA Economic Outlook – Down but not out

Western Australia continues to feel the cold hard reality of the commodity cycle but economic conditions in WA should steady from 2018. However, the new State Government has its work cut out.

Download the full report.

The Digital Revolution – Mining starts to reinvent the future

By bringing together our understanding of shareholder value, mining operations, technology and analytics, we have developed an approach to the “digital mine” which helps mining organisations make the most of the digital opportunity and avoid the many potential pitfalls that come with the adoption of new technologies.

Download the full report.

Mining and METS - Engines of economic growth and prosperity for Australians

A Deloitte Access Economics report for the Minerals Council of Australia finds that the total economic contribution of Australia’s mining and METS sector was $236.8 billion in 2015-16.

Download the full report. 

 

 

 

We would welcome the opportunity to discuss these reports in more detail. Please reach out to your Deloitte contacts for more information.

If you don’t currently receive our WA Index, you can register to be added to our distribution list.

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

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