Concerns over President Trump’s healthcare policies are causing consternation in the financial markets everywhere. Almost $30 billion dollars was wiped off the ASX when nervous traders had the jitters. The ASX 200 fell by 1.6%, with mining stocks some of the biggest losers.
Iron ore prices took a massive hit, falling 4% overnight on March 22, which had a knock-on effect on mining stocks. Fortescue Metals dropped by 5.3%, shares in Rio Tinto tumbled by 2.6%, and BHP Billiton fell by a more modest 2.9%.
On March 23, the ASX recovered its sharp losses of the day before thanks to investors buying up cheap mining and energy stocks. The S&P/ASX 200 Index jumped back above the 5700 mark to 5708. Analysts from City Index noted that the materials sector was providing much-needed support to the index. Overall, iron ore prices fell by 8%, but global oil prices are holding relatively firm, which is helping to prop up mining stocks and shares.
Fortunately, fluctuations in the financial markets are not a reflection of the mining sector as a whole, but there may be troubled times ahead in Western Australia.
WA Mining Sector under Pressure
WA mining is coming under increasing pressure after the State Government announced a new iron ore fee. Mike Henry of BHP is warning that taxing the mining sector in a bid to reduce the $4 billion budget deficit could push the industry into serious decline. Mr Henry says the industry needs to remain competitive if it is to compete in the global marketplace, but with increased taxes in the pipeline, mining giants such as BHP and Rio Tinto may reduce their investment in Western Australia. However, local MP Brendan Grylls disputes the claim and accuses the industry of making misleading statements.
BBIG – China State Construction Engineering Partnership
Thankfully, it’s not all bad news. BBIG has recently announced a new $6 billion partnership with China State Construction Engineering Corporation for the construction of an iron ore project in WA. This should help to give the sector a much-needed boost. Construction is set to begin in the Pilbara region. 3,300 workers will be required during the construction phase, but once the project is up and running, there will be positions for a further 900 permanent workers. The Memorandum of Understanding ceremony was attended by Australia’s Prime Minister Malcolm Turnbull and Chinese Premier Li Kequiang.
Mining Company IPOs Set to Increase in 2017
There are also other signs that the Australian mining sector is slowly beginning to recover. Experts predict that several of the smaller mining companies are likely to float on the stock market this year, which could prove profitable for amateur investors looking to get in on the ground floor. So far, nine companies have already filed to list shares on the ASX, which is a significant increase in the total of 10 issues in 2016.
Rallying metal prices are encouraging some companies to consider stock market flotation as a means of raising working capital to fund further exploration. However, many still remember that disastrous fall in mining stocks back in 2015, so IPOs are expected to be modest. Firms are more likely to look at listing on junior markets in IPOs worth $10 million or less.
Whether the mining sector can continue to prop up the economy in WA remains to be seen, but one thing is certain, diversification is a smart strategy going forward.
Guest Post by: Luke Hatkinson-Kent