Resources sink market as oil plunges and investors weigh US Fed action
A worsening outlook for key commodity prices weighed on mining and energy stocks and drove the sharemarket lower on Monday, amid general anxiety as investors weigh up the potential impact of the first US rate rise in almost a decade.
Investors both here and abroad are awaiting the outcome of Wednesday night’s meeting of the US Federal Reserve’s monetary policy setting committee, and in particular whether the language in the accompanying statement will give further clues as to the timing of what would be the first US rate rise in almost a decade.
Oil and gas producers came under particular pressure on Monday as crude prices extended last week’s losses. The S&P/ASX 200 index fell 17 points, or by 0.3 %, to 5797.7, while the All Ordinaries index dropped 18 points to 5769.7.
The US benchmark WTI oil price dropped as low as US$43.57 a barrel in early trading, it’s lowest since March 2009, before rebounding to US$44.36 in afternoon trade, still down almost half a US dollar since its last settlement. The international standard, Brent crude, traded at US$54.32 a barrel, down 40¢, but still well above its January low of US$S45.19.
Oil Search dropped 3.8 % to $7.59, while Santos fell 2 % to $6.97.
Woodside Petroleum eased 2.2 % to $33.99 in sympathy with the fall in oil prices and after the company announced it had been forced to shut down its $15 billion Pluto liquefied natural gas plant in Western Australia.
Woodside announced that a cyclone had torn a drilling rig from its moorings and it had drifted dangerously close to flow lines at the offshore field.
Pluto is Woodside’s biggest single production asset and was the largest contributor to earnings last year, and the shutdown could affect production, profits and dividends, depending on how long it lasts, said UBS analyst Nik Burns.
“It has the potential to be material if it drags on for more than a week, although we believe that is unlikely,” Mr Burns said.
BHP Billiton also continued to weigh, and was the biggest single detractor on the benchmark index as it fell 1.2 % lower to $29.40.
But shares in Rio Tinto added 0.7 % to $57.70 and Fortescue added 0.5 % to $2.01, despite the price of iron ore at China’s Qingdao port falling 0.5 % to $US57.66 per tonne.
“It’s not an easy outlook for resources at the moment, as in the near term sentiment is predicated on commodity fundamentals where supply exceeding demand in key markets such as iron ore and oil,” Pengana Capital portfolio manager Tim Schroeders said. “Those are two commodities which are fairly significant in terms of flow through to the market.”
Strength in the big four banks moderated early losses and helped the ASX 200 lift off early lows. Commonwealth Bank of Australia closed 0.5 % higher at $91.79, NAB and Westpac Banking Corp added 0.5 % to $37.94 and $37.98 respectively, while ANZ Banking Group gained 0.3 % to $35.55.
CSL eased 0.1 % to $91.81 after trading ex-dividend. Telstra fell 1 % to $61.14.
Internet service provider iiNet continued to rise following TPG’s US$8.60 per share bid for the company on Friday. The takeover target was 4 % higher at US$$8.84 as analysts suggested the $1.4 billion offer undervalued the business and raised the prospect of a higher bid emerging. TPG shares closed 2.7 % lower at $8.86.
Regional markets were mixed, with Chinese shares the standout, reaching five-year-highs after Premier Li Keqiang said on Sunday that Beijing had plenty of scope to adjust policies in order to boost the world’s second largest economy
Waste manager Transpacific Industries’ shares rose 3.3 % to 78.5¢ after it was reported in The Australian Financial Review that rival Suez Environment had 700 million euros to fund acquisitions in Australia.