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Nickel roars higher on Indonesian supply concerns

James Gerrish

Market Matters

Stocks were down early this morning tracking weakness in US Futures following yesterday’s move by the Trump administration to implement its planned 15% tariffs on $US110bn of Chinese goods including footwear and even the Apple Watch, and as promised China retaliated. More tariffs are planned by both sides for October and December.

Manufacturing data was stronger than expected from China today with the Caixin PMI printing +50.4 versus 49.8 expected. This supported the Iron Ore price in Asia today with Iron Ore Futures up +5.8% - RIO & FMG strong on the back of this (FMG went Ex-dividend by 26cps closing down 15c). The material sector the best on ground today while weakness in Telstra (TLS) weighed on the communications sector.

Economic Data Today

Overall, the ASX 200 lost -24pts today or -0.38% to 6579, Dow Futures are now trading down -98pts /-0.37%.

ASX 200 Chart

ASX 200 Chart


Nickel Stocks: Ripped higher today, Western Areas (WSA) +14.11% and Independence Group (IGL) +10.29% on reports that the Indonesian Government plans to reinstate the Nickel ore ban in December 2019. On Macquarie’s numbers - in 2019 nickel ore exports have been running at 20ktpa recoverable nickel, equivalent to 10% of world nickel supply. While some supply response from the Philippines is possible should the ban be re-instated, the net effect could be to more than double the current supply deficit. That’s caused a big re-rating in the Nickel price, up 7% on the news today and more than 40% in the last two months. The Nickel stocks have been doing well of late, particularly WSA which has bounced strongly from the $2 region. More information needed however ultimately, commodity stocks track their underlying commodity and the current price of Nickel will see big upgrades to earnings for FY20 in both names.

Nickel Chart

Western Areas (WSA) Chart

Incitec Pivot (IPL) -4.36%: The explosives, fertilizers and chemicals distributor Incitec Pivot was hit early in the session today on a downgrade with shares trading as low as $2.74, 14.6% below Friday’s close however the stock recovered as the session rolled on. The company downgraded its EBIT guidance for FY19 by around 26% to the midpoint of the $285m to $295m range for the September year end. About a third of the downgrade stemmed from commodity pricing and exchange rate impacts, while the remainder was focused to the fertilizer business which the company is now reviewing. The US ammonia plan at Waggamana has been under performing in the second half of the year while fertilizer revenue has been hit by drought and rising gas process in the Queensland production facility. UBS has been called in to look at Incitec in an effort to assess how best to extract value from the three components of the company.

Incitec Pivot (IPL) Chart

Pilbara Minerals (PLS) Voluntarily suspended: Lithium stocks are having a tough time with slow demand hurting prices at a time when many of them are undergoing big capital intensive expansion projects. Pilbara were in talks to sell a project stake however that fell over on valuation grounds. They are now tapping the market for fresh equity although the trading halt requested on Thursday was scheduled to be lifted this morning – they clearly need more time to convince potential backers – never a good sign. Now the halt will remain until Friday assuming the raise is successful.

Here’s current broker calls on PLS…All look incredibly optimistic now

PLS Broker Calls

Pilbara Minerals (PLS) Chart

Broker moves; Report out today from Credit Suisse naming Boral (BLD) and Whitehaven (WHC) amongst their best Australian buy calls…Elsewhere

· Metals X Downgraded to Neutral at Macquarie; PT A$0.16

· Resolute Mining Upgraded to Sector Perform at RBC; PT A$1.50

· PWR Holdings Downgraded to Hold at Bell Potter; PT A$5

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James Gerrish
Portfolio Manager
Market Matters

James is Portfolio Manager & Primary Author at Market Matters, a daily investment report with over 2500 subscribers that offers real market insight. He is also Senior Portfolio Manager within Shaw and Partners heading up a team that manages...

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