PERTH (miningweekly.com) – Weaker commodity prices, and more specifically the slide of the iron-ore price, have resulted in the market capitalisation of Western Australian companies comprising the Deloitte Index falling by 2.6% during March, closing the month at A$128.8-billion.
Advisory firm Deloitte said this week that despite signs of a recovery in February, bulk commodities such as iron-ore and coal suffered the biggest losses during the month of March, falling 17.8% and 19.9% respectively, followed by crude oil, which fell 10.2%.
“The Western Australian economy is still adjusting to the resources boom’s transition from construction to production, at a time of economic uncertainty and commodity price volatility, and it will have to remain resilient to ride out this short-term pain,” Deloitte clients and markets partner for Western Australia Tim Richards said.
“The significant decrease in the iron-ore price, with a further decrease in early April to $47/t, is causing real pain for the iron-ore producers included in the Western Australian Index. Some of these companies will have to make critical decisions about whether to mothball operations, complete asset sales or renegotiate funding if this environment continues,” he said.
Iron-ore suffered its biggest quarterly price loss since 2009, falling to a ten-year low of $53/t during March as the global glut continued with low cost supplies from Australia and Brazil flooding the market and Chinese demand remaining weak.
The price of coal fell by 19.9% to pre-global financial crisis levels, on the back of ongoing weakening in Chinese demand, with the country’s National People’s Congress recently stating plans to cut thermal coal consumption by 160-million tonnes over the next five years and the closure of the last mega coal-fired power station in Beijing.
Richards noted that there was also limited positive news for oil in March.
In spite of signs of slight improvements in February, Organisation for Petroleum Exporting Countries (Opec) oil production continued to rise – to a 19-month high – putting downward pressure on prices which closed the month at $61.06/bl, down 10.2%. The continued ramping up of Opec production to preserve market share was intended as a measure to compete against US output, which is currently at its highest levels in more than 30 years.
Deloitte reported this week that the majority of equity markets surveyed in March posted lacklustre results, with the Nikkei the only exception, increasing by 2.2%. The FTSE 100 fell 2.5%, the US S&P 500 was down 1.7%, and the All Ordinaries posted a small loss of 0.6%.
Despite the continued weakening of the resource sector, declines for the Australian dollar and a further interest rate cut by the Reserve Bank of Australia benefited company earnings, and enhanced investor appetite for high dividend equities.