ASX rises as iron ore prices jump to seven-year high

Iron ore, coal miners help Australian shares extend gains
2020-12-03
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ASX rises as iron ore prices jump to seven-year high

The Australian market has ended the day stronger, driven by a surge in prices for iron ore.

The benchmark ASX 200 rallied in afternoon trade and ended Thursday up 0.4 per cent to 6,615 points. The broader All Ordinaries lifted by even more, up by 0.5 per cent to 6,847 points.

The biggest boost of the day came from iron ore mining giant Fortescue Metals (+13.3pc) along with its competitors BHP (+4.5pc) and Rio Tinto (+6.9pc).

That was after the price of the steel-making commodity leapt (+3.1pc) to $US136.29 a tonne, around a seven-year high.

Several factors are driving the strong demand for one of Australia’s biggest exports.

China is by the far the world’s biggest consumer of the commodity. As the giant economy has recovered from COVID-19 lockdowns, it continues as the world’s most pivotal consumer.

“China usually accounts for around 70 per cent the world’s iron ore imports,” CBA analyst Vivek Dhar said.

“Weaker seaborne supply has also contributed to the outcome.”

Brazilian iron ore producer Vale has also downgraded its production forecasts. The South American country is the world’s biggest producer of iron ore outside of Australia.

Mining and energy stocks like gold company Sandfire Resources (+5.2pc) and Whitehaven Coal (+8.8pc) were also some of the ASX 200’s best performers.

China drives iron ore demand but pushes other stocks down

While China’s demand for iron ore was a boost to ASX 200 stocks with investment in the commodity, other companies with reliance on China have been battling as the nation continues to come at loggerheads with Australia.

Milk company A2, which has a huge investment in China, has been sliding for months.

It was one of Thursday’s worst performers (-2.6pc) at $13.06. That is down from a high of $20.05 in June.

Treasury Wine Estates has made up some ground this week after announcing it expects China’s new tariffs on Australian wine to effectively kill its market there.

However, it is still down almost 4 per cent on the week.

Other poor performers on the ASX 200 on Thursday include banking, with Commonwealth Bank (-0.7pc), Westpac (-0.5pc), NAB (-0.1pc) and ANZ (-0.1pc) shares slightly lower.

Tech and healthcare stocks were the weakest performers, including Mesoblast (-3.9pc) and Fisher & Paykel Healthcare (-3.2pc).

In context, the market’s subdued reaction comes after a record-breaking surge in November. It was the best month ever for the ASX 200, while the All Ords’ posted its strongest month in 32 years.

The Australian dollar was slightly weaker (-0.1pc) at 74.10 US cents.

Before it retreated, the local currency had jumped to 74.2 US cents, its highest value since July 2018.

Kogan surges on New Zealand acquisition

Shares in online retailer Kogan leapt 7.7 per cent to $17.35.

That was after Kogan announced it is buying New Zealand-based online retailer Mighty Ape for $122.4m.

The purchase will be made in four stages and is being funded by Kogan’s cash reserves.

The Kiwi website was founded in 1995 as a traditional bricks and mortar shop but went into e-commerce in the 1990s.

It focuses on toys, gaming and entertainment, all of which have been popular during the COVID-19 pandemic.

Mighty Ape made $28.9m profit in the last financial year but Kogan told shareholders that it expects to almost double that to $45.7m in 2020-21.

“The acquisition delivers immediate scale to Kogan’s operations in New Zealand as well as incremental growth to Australian operations,” the company said in a market update.

Domestic recovery for Qantas

Qantas has forecast a “substantial” loss in the 2020-21 financial year, having already suffered a $1.96 billion annual loss in August.

It is not expecting international travel to resume in a “material” way until at least July 2021.

However, the airline believes its first-half earnings (before interest and tax) will be “close to break even”.

In its latest trading update, the company also anticipates it will have positive cashflow in the second half, when redundancy costs are excluded.

Qantas has made 8,500 employees redundant since the pandemic began. This includes 2,500 ground staff roles that the company announced, earlier this week, would be outsourced to workers at lower rates.

The airline confirmed it will have paid out half of those redundancy costs by December 31.

However, Qantas said it has experienced a surge in demand for domestic flights after Queensland eased its border restrictions.

Its domestic capacity has risen to 68 per cent of pre-COVID levels this month.

“There’s been a rush of bookings as each border restriction lifted, showing that there’s plenty of latent travel demand across both leisure and business sectors,” said Qantas chief executive Alan Joyce.

“Between Qantas and Jetstar, there were over 200,000 fares sold for flights to Queensland in 72 hours after the border openings with Sydney and Victoria were announced.

Qantas’ share price ended the day down 1.1 per cent to $5.49.

US market loses momentum

Overall, markets did not react strongly to the news that the Pfizer-BioNTech coronavirus vaccine will be rolled out in the United Kingdom from early next week.

Britain’s share market was the only one that reacted with excitement, given this development has direct benefits for the UK, and its hope for an economic rebound. The FTSE 100 index jumped 1.2 per cent overnight.

On Wall Street, vaccine euphoria appears to have lost some of its momentum.

The S&P 500 edged marginally higher (+0.2pc), but still managed to close at a new record high of 3,669.

The Dow Jones index went up (+0.2pc) to 29,884 points, while the tech-heavy Nasdaq slipped by almost 0.1 per cent to 12,349.

Investors are taking a breather after the US market surged by around 11 per cent in November.

It was the strongest month since April for the S&P and Nasdaq, but the Dow’s biggest monthly gain since 1987.

Sentiment was weighed down by lacklustre jobs data on Wednesday (local time), which revealed a smaller-than-expected rise in private sector hiring.

Private payrolls added an extra 307,000 workers in November, according to ADP’s National Employment Report.

But that was a major slowdown, considering more than 400,000 people were hired in the previous month.

It also coincides with surging COVID-19 infections across America and tougher business restrictions.

“The rapid spread of the virus across the nation is making it harder to find employment this fall,” said Chris Rupkey, chief economist at MUFG in New York.

Gold lifted (+0.8pc) to a $US1,832.30 an ounce, while Brent crude rose (+1.6pc) to $US48.20 a barrel.

Oil prices have surged 30 per cent over the past month on vaccine euphoria, and on anticipation that the Organization of the Petroleum Exporting Countries (OPEC) will maintain production limits next year.

ABC/Reuters

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