AWB Downgrage; Rio, JFE Iron Ore Price Deal

Darlington Musarurwa
17 Mar, 2010
New York City

Stocks and commodities closed higher in Sydney trading. Japanese steelmakers JFE Holdings and Sumitomo Metal Industries agreed to 55% price increase for coking coal for a three-month contract. AWB Ltd lowered profit estimate. David Jones first half sales increased 3%.

[R]7:00 AM Sydney – Stocks and commodities closed higher in Sydney trading. Japanese steelmakers JFE Holdings and Sumitomo Metal Industries agreed to 55% price increase for coking coal for a three-month contract. AWB Ltd lowered profit estimate. David Jones first half sales increased 3%.[/R]

Australian stocks, benchmark index and commodities closed higher after Greece default worries receded.

The rating agency Standard & Poor’s removed Greece from its negative credit watch and said that it is satisfied with the budget cuts by the Greek lawmakers to trim the deficit near 8.5% by the end of the year from 12.7% last year.

Commodity stocks also gained as gold prices advanced 1.5% to $1,122 per ounce and crude oil prices edged up 0.6% to $82.2 per barrel.

In Sydney trading ASX 200 Index rose 1.2% or 56 to 4,853.20.

Of the ASX 200 index stocks, 150 increased, 34 fell, and 16 were unchanged. AWB Ltd led decliners after downgrading its full year profit forecast.

The Australian dollar declined 0.02% to 91.82 U.S. cents.

China set the date of trial for four detained employees of Rio Tinto Group on March 22, nine months after the arrest. The Rio Tinto iron ore China chief Stern Hu and others will be tried in Shanghai No. 1 Intermediate People’s Court according to a statement from Australian Department of Foreign Affairs.

AWB Downgrades Profit Forecast

AWB Ltd reported today that although all key operating businesses are operating in line of expectations, its full year profit before tax and significant items is forecasted to fall to between A$85 million to A$110 million from the previous projection of A$115 million to A$140 million.

The company blamed lower profit on the sale of Landmark Financial Services loan and deposit books.

Also profit before tax and significant items for the half year ending March is estimated within the range of A$25 million and A$35 million, including the Watson class action related charges.

According to the company, the grain marketing business has been affected by increases in global wheat stocks, lower transactional margins and reduced price volatility within the Australian and international grain markets.

AWB’s Managing Director, Gordon Davis, said “We expect that the domestic grain marketing result will be weighted towards the second half of the financial year but for the full year it is still likely to be significantly lower than the prior comparative period.”

Interest Rates to Rise a Bit Further, RBA

Reserve Bank of Australia assistant governor Guy Debelle said today at a conference in Melbourne interest rates are estimated to increase.

He, however, noted that higher levels of household debt implied that changes to monetary policy will have a larger impact than previous increases.

Debelle notes that the market for securitization of debt is recovering as “it is now becoming a competitive source of funds again” and he noted that the number and volume of the securitization transactions are growing again.

In addition, lending from non-bank lenders is now on the rise.

RBA Urges Monthly Presentation of Inflation Data

Separately, Reserve Bank of Australia said in its submission to the 16th Series Review of Consumer Price Index government has to publish inflation figures on a monthly basis and not quarterly basis that will facilitate policymakers.

Presently the Australia Bureau of Statistics publishes the information on a quarterly basis.

ASX Movers

AWB Limited led the decliners in the S&P ASX 200 index with a loss of 11.3% followed by losses in Abacus Property Group of 3.6%, in Charter Hall Retail Reit of 2.7%, in Virgin Blue Holdings Limited 2.7% and in PaperlinX Limited 2.1%.

Linc Energy Ltd led gainers in the S&P ASX 200 index with a rise of 9.2% followed by gains in CuDeco Limited 6.2%, in St Barbara Limited of 5.8% and in Energy Resources of Australia Limited of 5.5%.

Other Movers

AWB Limited plunged 11.3% to A$0.93 after the former monopoly wheat exporter cut its 2010 pre-tax profit forecast on falling margins for its main business and the impact of a divestment.

BHP Billiton plc added 1.2% to A$43.30 after the mining company is keeping a key Australian coking coal port shut due to an approaching cyclone storm and other port operators also prepared to shut soon due to the storm.

David Jones Limited added 1.1% to A$5.13 after the department store group said first half revenues rose 3% to A$1.09 billion from A$1.06 billion a year ago. Net profit for the first half rose 10% to A$100.5 million or 19.4 cents per diluted share compared to net profit of A$91.2 million or 17.7 cents per share a year ago.

Rio Tinto Limited rose 1.5% to A$76.70 and JFE Holdings Inc and Sumitomo Metal Industries Ltd agreed to a 55% increase in coking coal price. The second and third largest steel companies also agreed with a similar price with Teck Resources Ltd.

The revised price for the coal will be $200 a metric ton compared to $129 a ton for all shipments beginning April 1 for a three-month contract.

SP AusNet climbed 1.6% to A$0.90 after the power distributor launched a 7.5 year bond offering for a value between A$200 million to A$300 million, according to Dow Jones report.