Australian Stock Market Report – Midday 5/19/14

MID-SESSION REPORT
(12.10pm AEST)

The Australian sharemarket is off to its worst start to a week in almost a month and a half, with a slump in iron ore pushing miners substantially lower. At lunch, the All Ordinaries Index (XAO) is down 0.9 per cent, with mining and energy stocks down by at least 1.5 per cent.

The price of iron ore fell by over 2 per cent on Friday, due to continued concerns of market oversupply. The pace of home price growth in China has also slowed in the 12 months to April. Australia's two largest producers - BHP Billiton (BHP) and Rio Tinto (RIO) are slumping, with the smaller producers being pushed down even further. RIO is Australia's biggest producer of iron ore and its shares are down 2.3 per cent. Fortescue Metals (FMG) is the country's third biggest ore miner and is down 3.3 per cent.

While these losses are substantial from the miners, producers like Gindalbie Metals (GBG) and Atlas Iron have been having a much tougher journey this calendar year. It costs smaller producers of ore significantly more to mine ore than the larger players. In fact, Gindalbie Metals' breakeven price for each mined tonne of ore is around US$91/t (around twice as high as RIO's) and with prices now at US$100/t it does create a challenging environment for the miner. GBG shares are down 55 per cent since January and slumped by 60 per cent in 2013.

The big four banks are down by as much as 1 per cent as all the majors are no longer trading cum dividend. This means that purchasing shares in any of the majors no longer makes you eligible to receive their next interim dividend payments. Three of the majors are scheduled to pay out their dividends in July.

On a positive note, both Dulux Group (DLX) and Elders (ELD) are improving following their profit results. Paint manufacturer, DLX has reported a 33.6 per cent rise in half year profit to $56.1m and a 25 per cent rise in its interim dividend. DLX is up 0.5 per cent. Rural services business Elders (ELD) is 4.3 per cent firmer despite reporting a $10.2m half year loss. This was still an improvement on last year's close to $300m loss and had a largely positive outlook for the second half of the year.

Telstra (TLS) is down just 0.25 per cent to $5.28; however is quite close to cracking through a nine-year high above $5.30 per share.

The Australian dollar buys US93.6c.

At lunch, 721.8m shares have been traded worth just $1.53bn. 307 stocks are higher, 472 are in the red and 310 are unchanged.

On the economic front, the latest weekly petrol price data will be issued by the Australian Institute of Petroleum. Prices spiked higher a few weeks ago due to being at the top of the discounting cycle.