australian stocks end lower on weak commodities 904382014

After its solid gains in the last four sessions the Australian share market corrected Tuesday, with renewed weakness in oil and iron ore driving losses in the energy and materials sectors.

The benchmark S&P/ASX 200 Index and the broader All Ordinaries Index each slipped 1.1 per cent to 5,380.9 points and 5,356.4 points respectively.

The materials, energy and information technology sectors were the worst performers of the day, losing 2.85, 2.05 and 1.53 per cent, while defensive sectors such as telecommunications, healthcare and consumer discretionary lost only 0.58, 0.49 and 0.45 per cent respectively. However, all sectors ended in the red for the day.

"In the metals and mining sector we expect to see earnings per share fall by 15 per cent over the coming 12 months based on lower average iron ore and oil prices. However a falling Aussie dollar, cost cutting and higher volumes from newly completed project expansions will cushion some of the fall for the large miners," Philo Capital Advisers head of listed securities Hugh Dive said, speaking to The Sydney Morning Herald.

Woodside Petroleum Ltd (ASX:WPL) was down 1.89 per cent to A$37.97 and Santos Ltd (ASX:STO) lost 1.29 per cent to close at A$8.39.

BHP Billiton Ltd (ASX:BHP) closed lower by 3.5 per cent to A$28.81, while Rio Tinto Ltd (ASX:RIO) lost 3.3 per cent to A$55.81. Fortescue Metals Group Ltd (ASX:FMG) declined 5.2 per cent to A$2.55. Beleaguered iron ore miner Atlas Iron Ltd (ASX:AGO) announced Tuesday that it would suffer write-downs of as much as A$900 million in the first half of next year to reflect the diminished value of its operations in the Western Australian Pilbara region following the slump in ore prices.

Overnight, the price of iron finally broke down past a support level of US$68 that had been holding since November. Benchmark iron ore for spot delivery at Tianjin, China crashed nearly 4 per cent from its previous close of US$68 to US$65.70 per tonne, a new post-2009 low for the steel-making raw material, according to The Australian. Iron ore’s price has now lost over 50 per cent since the beginning of this year.

Crude oil, however, has strengthened after figures showed a revival of demand in the US and China, the largest oil consuming countries. As at 07:58 today (AEDT), US crude for February was trading at $57, up more than 3 per cent over the previous close. According to a research note from Standard Chartered, quoted by The Australian, US shale oil activity has already suffered “a downward lurch” and that by the end of the first quarter in 2015, net growth in shale production could likely become negative.

Cinema group Hoyts has been acquired by ID Leisure Ventures, a British Virgin Island-based investment fund founded by Chinese billionaire Sun Xishuang. Though terms were not disclosed, the deal could be worth almost AU$900 million according to estimates. The cinema chain, Australia’s second-biggest, was owned by private equity firm, Pacific Equity Partners.

Telstra Corporation Ltd (ASX:TLS) announced its acquisition of the private equity owned Pacnet Asian communications network for US$697 million (AU$858 million) including the value of US$400 million (AU$493 million) of debt. Pacnet provides connectivity, data centre and other services to telecoms, large corporations and governments in the Asia-Pacific region, according to ABC. The acquisition will give Telstra access to more services, a larger data centre network, additional submarine cables and a number of major customers in the region.

The Australian dollar continued its weak trend, and was trading at 80.89 cents at 06:30 today (AEDT), assailed by weak commodity prices and strength in the US dollar following solid numbers on US GDP growth according to The Australian.

News that the US economy posted its strongest growth in more than a decade helped US stocks to close higher yesterday. The DJIA ended at 18,024.17, the first time above the 18,000 level, as figures showed US GDP in the third quarter grew 5 per cent annualised, blowing away consensus estimates of 4.3 per cent. Wall Street’s strong show may rub off on Australian stocks today which are set to open higher – as at 06:45 (AEDT), the March share price index futures contract was up 31 points at 5,370, according to the Business Spectator.

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