Australian Stock Market Report – Midday December 5, 2014

A worker walks at the Nahr Bin Umar field, north of Basra, southeast of Baghdad, November 16, 2014. OPEC producer Iraq expects to base its 2015 budget on an oil price of $80 per barrel, Oil Minister Adel Abdel Mehdi told parliament on Monday. Picture taken November 16, 2014. REUTERS/Essam Al-Sudani (IRAQ - Tags: POLITICS ENERGY BUSINESS)

Oil falls as OPEC targets Asia

 A flat start for local shares on Friday has given way to broad selling for the ASX 200. At the best levels of the session the AS 200 was ahead by almost 21 points. However at lunchtime the market was around session lows with a loss of 26 points or 0.5%. The was no clear direction offered by US and European markets overnight. US sharemarkets eased modestly in choppy trade on Thursday Investors waited on the non-farm payrolls (employment data) scheduled for release on Friday. European shares fell on Thursday after the ECB stuck to its line that it will decide early next year whether further measures are needed to boost the euro zone economy, sparking profit-taking. Commodity prices remain the Achilles heel for the Australian sharemarket. Developments overnight have mixed implications for commodity prices in the broader picture. World oil prices fell in choppy trading on Thursday as the debate for a sustainable price level continued after Saudi Arabia announced deep price cuts for crude it sells to Asian and US buyers in an apparent attempt to defend its market share. OPEC has used its 40% share of world crude oil supply, particularly over the last decade, to dictate higher crude oil prices. With non-OPEC crude oil output anticipated to lift next year again it is clear the oil cartel is making a concerted effort to marginalise high cost energy producers and reclaim market share through lower prices. Brent crude fell by US40c or 0.6% to US$69.52 a barrel. The US Nymex crude price fell by US57c or 0.8% to US$66.81 a barrel. Energy stocks were the main weight on the local sharemarket as a result. Woodside Petroleum (WPL) , Oilsearch (OSH) and Beach Energy (BPT) were all lower by well over 1% at lunch.

 Metals prices have generally firmed over the last day helped by news from China. The People's Bank of China (PBOC) injected USD4.9b into the financial system in an effort to boost economic growth. Additionally nickel continued to lift on supply concerns after Indonesia's Constitutional Court upheld a mineral ore export ban implemented in January. Indonesia was a key exporter of high-grade nickel ore to China before the export ban took effect. In the last day iron ore prices have risen by 2.9% to USD71.25/t (CFR China), and steel rebar futures in Shanghai have lifted on views that steel demand may pick up post-winter in China. Notwithstanding the better dynamics for metals, miners continued to lose ground led by the bulk miners with Fortescue Metals group down by more than 4%

 Junior iron ore miner Mount Gibson (MGX) suffered a substantial set back this morning. The group said it would mothball its Koolan Island iron-ore mine in Western Australia after a series of landslips had left the main pit flooded with sea water. As result in the majority of workers at the site being laid off in addition to a substantial impairment charge being added to the half-year result. MGX is now reviewing the future of the mine, with a decision expected before the end of June.MGX shares were down by 48% or 20 cents at 21 cents

 Leighton Holdings (LEI) has announced that it has won a tender to widen western Sydney's M4 motorway. The $150 million contract will see the upgrade 7.5km of motorway, from three to four lanes in each direction, between Homebush and Parramatta. The project the first stage of the WestConnex tunnel linking western Sydney with the airport at Botany Bay. Work is due to begin in early 2015 with thanks to federal and state funding . The project is set down for completion by by 2017, and will connect the future M4 East tunnel to Haberfield. LEI shares were lower by more than 1%

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