June marks a sombre end to a challenging year for the Deloitte WA IndexDOWNLOAD
3 July 2013: The Deloitte WA Index has experienced its fourth consecutive monthly loss, with the market capitalisation of WA listed companies which comprise the Deloitte WA Index falling 5.7% during the month of June 2013, closing the month at AU$125.6bn. June marked a sombre finale to a year dominated by losses, with WA listed companies struggling through a period of falling commodity prices, a stubbornly high Australian dollar and increasing operational costs in Australia. Over the 12 months to 30 June 2013, the Deloitte WA Index fell 10.9%.
"The WA economy has faced many challenges during the year, and given the rapid fall in commodity prices in recent months, these challenges are likely to continue in the near term," commented Tim Richards, Lead Audit Partner in Deloitte Perth.
"Companies are looking at a shift in strategy, with a focus on cost reduction and navigating through increasing regulatory burdens, at the same time profit margins are diminishing as commodity prices fall. Remaining competitive on an international level is important for the WA economy to stay in the game," Mr Richards said.
Global markets did not fare much better, with all international indices surveyed down in the month of June. Growing concerns around China's economic stability combined with U.S. Federal Reserve chairman Ben Bernanke's comments regarding a potential scale back of the U.S. governments quantitative easing policies hit stocks hard.
Rapid credit growth in China has prompted a tightening of interbank liquidity by the People's Bank of China in an attempt to prevent a credit crunch. Meanwhile, the intention of the U.S Federal Reserve is linked to economic performance, and it was indicated that this would only eventuate if supported by strengthened economic data; and in any event, is unlikely to occur until the first half of 2014.
The FTSE 100 was the hardest hit, with a fall of 5.8%, while the ASX All Ordinaries and US S&P 500 were not far behind, falling 2.8% and 2.6% respectively. Meanwhile, the Nikkei has ended the growth run experienced at the start of the year, falling 0.7% in the month of June.
Exporters have welcomed a falling Australian dollar, which fell as low as US$0.9202 during the month of June, its lowest level since September 2010. A weakening local currency, however, was not sufficient to outweigh falling commodity prices, with the majority of commodities surveyed experiencing significant price falls during June, both in Australian dollar and U.S. dollar terms.
Precious metals suffered the greatest fall of commodities surveyed, with silver, palladium and gold experiencing double-digit falls of 16.4%, 13.6% and 12.7% respectively. Both gold and silver were impacted by the perceived overreaction to the news that the U.S. Federal Reserve would begin to withdraw stimulus. Following this news, investors flocked to the U.S. dollar as a safe-haven investment, as both the gold price and silver price fell sharply.
Base metals tumbled on the back of weak manufacturing data coming out of China, with a report from HSBC indicating that manufacturing activity had slumped to a nine-month low, combined with rising inventory levels and reports of a slowdown of China's house price gains for a second consecutive month in May. Iron Ore and Brent crude oil prices bucked the trend, with price rises of 4.4% and 1.9% respectively. Iron Ore prices rose on the back of reports that Chinese mills were restocking, after having previously run stocks down in anticipation of slower growth. Chinese ports had a rise in stock levels of 6.5% of the key steelmaking ingredient, from a four year low in March. Continued fears of a disruption to oil supply stemming from geopolitical concerns in the Middle East have pushed oil prices higher.
The Movers and Shakers for the month of June include Antares Energy Limited, Coalspur Mines Limited and Focus Minerals Limited, with increases in market capitalisation of 37.9%, 19.0% and 16.7% respectively.
Antares Energy is an oil and gas exploration and production company which increased its market capitalisation by AU$33m to close the month at AU$120m. In late June, the company revealed a letter of intent, offering to sell all its assets in the Permian basin in West Texas for US$300m. After having experienced a fall in the first half of the month, the company's share price nearly doubled following the announcement, rising from AU$0.28 to AU$0.48 per share, a 71.4% increase in one day, and finishing the month at AU$0.47 per share.
Thermal coal development company Coalspur Mines Limited increased its market capitalisation by AU$29m to AU$183m in June, as the Board of Directors approved a development plan for Phase 1 of its Vista coal project that will deliver a 6Mtpa clean coal capacity operation for a development capital cost of C$458m. The Phase 2 expansion to 12Mtpa is expected to leverage off the 6Mtpa facility with an additional investment in the order of C$250m, with construction expected to begin in 2016 and development capital expected to be mostly funded through free cash flow.
Gold producer Focus Minerals Limited experienced an increase in market capitalisation from AU$110m in May to AU$128m in June, with the company's share price rising 16.7%. This growth comes in spite of falling gold prices and high operating costs at its Mount underground mine near Coolgardie in WA, with the Chinese-backed company cutting 22 jobs after suspending operations at the mine during the month, being one of four mines currently operated by the company.
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