Australia Worries Mining Production Cuts

123jump.com Staff
12 Nov, 2008
New York City

Stocks in Australia dropped despite a rise in consumer sentiment. UBS lowered net income estimate by 9% for Rio Tinto after the mining giant lowered production target by 10%. Fortescue Metals lowered iron ore shipment estimate on a fall in demand plant shut downs.

[R]3:00AM New York, 7:00PM Sydney - Australian consumer sentiment unexpectedly rises in November. Rio Tinto earnings likely to fall 9% on lower production.[/R]

Australian stocks dropped 0.9% despite a report that showed the country’s consumer sentiment rose more-than-forecasted in November.

Commodity stocks dragged the index as oil and metal prices fell and after UBS AG projected that Rio Tinto’s earnings will plummet 9% after the company reported that production will be 10% below estimates. The broker also estimated that the miner will need to generate $7 billion to pay for the $9 billion in loans maturing in the next eleven months.

Fortescue Metals also reported today that iron ore shipments might drop this year on falling demand and a temporarily closure of its processing plant and port.

In Sydney trading ASX 200 fell 0.9% or 33.6 to 3,927.30.

Of the ASX 200 index stocks 70 increased, 115 declined, and 15 were unchanged. Asciano Group led advancers in the index shares with a rise of 66.7% followed by Abacus Property gaining 35.6%.

Australian Consumer Sentiment Rises

Westpac Banking Corp. reported today that the Westpac–Melbourne Institute Index of Consumer Sentiment increased by an unexpected 4.3% in November to 85.5 from 82 a month earlier.

Consumer sentiment improved after the central bank’s recent aggressive rate cut and the $10.4 billion stimulus package unveiled by the government.

However the index is 22.6% lower than last year’s level and 14.5 points below the neutral level.

Confidence of people with a mortgage rose by 2.9% and the confidence of tenants increased by 11.1%.

The confidence of respondents earning less than $20,000 per year advanced 14.4% and the index for people above 45 years gained 10.3%.

In addition, the index measuring whether now is a good time to purchase a house surged by 21%, increasing the most since March 2006.

There was a 7.8% drop in respondent’s assessments of their finances relative to a year earlier as equity markets declined, and expectations for finances over the next 12 months slid 0.1%.

According to the survey, confidence about economic conditions over the next 12 months declined 1.8%. However outlook for economic conditions over the next 5 years increased by 15.7%, rising the most since July 2000. Opinion on whether it is a good or bad time to buy a major household item surged 15.8%.

Wespac says the Reserve Bank of Australia will further cut its cash rate by 0.75% in December.

Australia’s Cost of Labour Falls in September Quarter

The Australian Bureau of Statistics reported that the labor price index, which measures the cost of labor, rose by 0.9% in the three months to September from 1.1% in the previous quarter.

The index rose 4% in the year to September 2008 for all employee jobs in the country.

Analysts expected an increase of 1%.

Wages in the mining sector increased 6.3% on demand from Asia and accommodation, cafes and restaurants rose 2.3% for the year.

ABS noted that unemployment rate was flat at 4.3% in October from the comparable period a month ago.

Gainers & Losers

Asciano Group led advancers in the ASX 200 index shares with a rise of 66.7% followed by increases in Abacus Property of 35.6%, in Tishman Speyer of 15.9%, in Babcock & Brown of 13.6%, and GPT Group of 13.3%.

Minara Resources led decliners in the ASX 200 index shares with a fall of 17.4% followed by losses in Boart Longyear of 17.1%, in NRW Holdings Ltd. of 14.1%, in Alumina Ltd. of 13.5%, and Centennial Coal of 10.5%.

Commodity stocks fell after crude oil prices for December delivery declined 1.3% to $58.55 per barrel on a speculation that drop in economic activity will lower the worldwide demand.

Gold prices fell $13.30 to $733.2 per barrel. Felix Resources dropped 9.1%.