Resources lead JSE lower

Resources lead JSE lower

2014-08-28 14:21

Johannesburg - Resources stocks led the JSE lower on Thursday for the second consecutive day, as the share prices of iron producers are hovering around record lows.

Iron ore prices are continuing to fall, due to an oversupply in China. This causes serious harm to the value of companies such as Kumba Iron Ore [JSE:KIO] and Assore [JSE:ASR], and even affects the share prices of their holding companies, Anglo American [JSE:AGL] and African Rainbow Minerals [JSE:ARI].

By midday on Thursday the resources index was 1.61% lower and that pulled the rest of the market down. The All-share index traded 0.61% lower on 51 295 points and the Top 40-index was 0.73% weaker on 46 011.

The industrial index, which are experiencing resistance as 60 500, traded 0.45% softer on Thursday morning, with the financial index basically unchanged.

The current state of the economy also contributed to the lack of direction on the JSE and this confirmed this morning by disappointing results announced by Massmart and Impala [JSE:IMP].

Amongst the iron producers Kumba lost 2.34% on Thursday morning and the share traded at a new 52 week low of R321.59, beating the previous low of R322.95 which was set on May 30 this year.

Assore is also at a low as the share price dropped 1.84% to R318.50, which is softer than the previous low of R323.22 set last week.

The share prices of these companies are now for six months constantly under pressure and Kumba lost 26.1% of its value over that period, while Assore is now 25.1% weaker than six months ago. Over a year Kumba is now 27.6% weaker and Assore 16.1%.

The oversupply of iron ore is not only due to depressed conditions in the steel industry, but also to new production that came on line in China.

Kumba’s holding company, Anglo American, was 2.17% softer on R270.40. Anglo American traded at a 52 week high last month, but has now lost 6.1% over the last 30 days. It is however still 13.1% stronger for the past year.

African Rainbow Minerals, Assore’s holding company, did much worse than Anglo American and lost 2.37% . This morning’s price of R180.24 is now close to the 52 week low of R179 set on December 26 last year. This share lost 15.7% over the last six months and 4.5% for the last twelve months.  

Even BHP Billiton [JSE:BIL], which have also traded at a 52 week high last month, are affected by the negative sentiment towards iron ore and was on Thursday morning 1.95% lower on R337.34. The share has lost 8.6% over the last month.

Iron ore is one of the core products that BHP Billiton wants to keep, when non-core assets are unbundled into a new company soon.

In the platinum sector Impala Platinum initially lost 7.56% on Thursday morning after announcing that its headline earnings for the past year dropped with 74% from 329c to only 86c due the strike in the sector in the first time of the year. The company will not pay a dividend this year.

The current share price of R94.66 is also a new 52 week low. The previous low of R99.50 was reached last week.

In the retail sector Massmart [JSE:MSM] announced a 25.2% drop in headline earnings for the first half of the year, but the share price lost only 0.68% to R133.48. The share price is now 5.9% lower for the month and 11% softer for the past twelve months.

Woolworths [JSE:WHL] announced an 10% increase in headline earnings for the year till the end of June, but it was below analyst’s expectations.

It did however not affect the share price as the weaker than expected results are blamed on costs related to its acquisition of Australia's David Jones. The share price traded 1.44% stronger on R78.65.

In the financial sector Santam [JSE:SNT] gained 2.13% to R222 65 after announcing much better underwriting results. The underwriting profit for the first six months increased from R102m to R628m after a strong turnaround in the crop insurance book.

There were no big disasters in the reporting period and crop insurance made an underwriting profit of R187m compared to a loss of R112m in the same period of the previous year.