Shares in Bellamy’s jumped from $8.32 up to $12.81 this morning after a Chinese dairy company offered $13.25 per share in a full takeover. Read the full story here. This has also lifted other companies with strong links to Chinese consumers, with a2 Milk up 5.5 per cent to $13.81 and Blackmores up 6.8 per cent to $82.
Oil companies are surging on the rising oil price with Beach Energy up 9 per cent to $2.73, Santos up 7.7 per cent to $7.95, Woodside Petroleum up 6.6 per cent to $33.42, and BHP up 3.6 per cent to $38.51.
Despite all these rises, the market is still lower due to falls in banking stocks, CSL, Woolworths, Wesfarmers, and a 13 per cent drop in Sims Metals to $10.97 after a profit warning.
Energy and material sectors are leading with gains of 5.5 per cent and 1.5 per cent respectively, while financials are down 0.9 per cent compared to a 0.2 per cent fall in the broader ASX.
Metal and electronics recycler Sims Metal has warned a rapid deterioration in global demand for scrap metal will significantly affect the company’s results for the first half of the financial year. The $2.5 billion listed company had warned in its full-year results last month increasing escalation in trade wars, coupled with weak car sales, would reduce the demand for steel and aluminium over the medium term. Chief executive officer Alistair Field said it appeared at the time steel mills had been managing the lower demand, but in a trading update today said early this month mills had materially reduced their purchases.
At the end of August, the scrap metal price including freight from Turkey, the world’s largest scrap metal importer, sat around $US268 ($389) per tonne. Mid-way through last week, it had fallen below $US240.
“This reduction in demand for scrap has driven a steep fall in prices,” Mr Field said.
“The current sales price results in a buy price that is potentially below the level at which it is economic for a number of our suppliers to gather and sell scrap.” Mr Field said while the company would be able to manage this steep decline in demand under normal market conditions, the fall has coincided with a consistent rise in deep-sea freight prices, leaving the company unable to recoup its costs in the “very low price” environment.
While the company did not attach figures to its trading update, Mr Field said the company was expecting a “materially lower” result for the 2020 half-year when compared to the same period last year. In the first half of 2019, Sims Metal posted $3.3 billion in sales and an underlying net profit after tax of $76.7 million. While Mr Field said it was too early to say if the decline in demand would affect the company’s second-half results, he expected the market would recover in the medium-term.
“Regardless, our strategy remains sound, and the business is well-positioned to deliver good returns through the commodity cycle,” he said. “While our focus has always been on disciplined capital expenditure and required returns, we will be particularly cautious during this market downturn.”
Safe-haven assets are in demand in early Asian trade following an attack on a key oil facility in Saudi Arabia over the weekend. Spot gold prices have jumped 1.3 per cent to $US1,507.21 per ounce, according to Refinitiv data, while spot silver prices have surged 1.9 per cent to $US17.75 per ounce.
The Japanese yen has strengthened 0.3 per cent to 107.77 yen per US dollar. It touched a low of 107.48 earlier in the session. Reflecting the sharp lift in crude oil prices, both the Canadian dollar and Norwegian krone – to major oil-producing nations – have also jumped in early trade, gaining 0.5 and 0.7 per cent respectively against the greenback. Oil is up 12.8 per cent at $US67.90 per barrel so far.
In major business news this morning Bellamy’s Australia has entered into a $1.5 billion takeover scheme with the China Mengniu Dairy Company and Bellamy’s directors are urging shareholders to approve the deal. The offer is for $13.25 per share, consisting of $12.65 cash and a 60¢ special dividend.
“The proposed scheme is an attractive all-cash transaction at a 59 per cent premium to the prevailing share price,” chairman John Ho wrote to shareholders this morning.
“It reflects the strength of the Bellamy’s brand, the dedication of 160 passionate employees and the progress of our turnaround plan.”
The takeover is subject to shareholder approval, court approval, and Foreign Investment Review Board approval.
Mengniu is a Hong Kong-listed $25 billion company and is based in inner Mongolia. While 69 per cent of stock is listed on the market, the remainder is held by state-owned China National Oils, Foodstuffs and Cereals Corporation (COFCO) with three Mengniu board members also working for COFCO.
ASX futures down 7 points or 0.1% to 6667
- AUD +0.2% to 68.79 US cents
- On Wall St: Dow +0.1% S&P 500 -0.1% Nasdaq -0.2%
- In New York: BHP +1.9% Rio +2.2% Atlassian +1.3%
- In Europe: Stoxx 50 +0.3% FTSE +0.3% CAC +0.2% DAX +0.5%
- Nikkei 225 futures +0.4%
- Spot gold -0.7% to $US1488.53 an ounce
- Brent crude -0.2% to $US60.21 a barrel (up 12.8% to $US67.90 at 9.45am)
- US oil -0.4% to $US54.85 a barrel
- Iron ore flat at $US99.30 a tonne
- Chinese markets were closed Friday for a holiday
- LME aluminium +0.4% to $US1810 a tonne
- LME copper +2.5% to $US5975 a tonne
- 2-year yield: US 1.80% Australia 0.90%
- 5-year yield: US 1.75% Australia 0.89%
- 10-year yield: US 1.90% Australia 1.15% Germany -0.45%
- 10-year US/Australia yield gap: 75 basis points
The week will begin on a slightly nervous note this morning. Geopolitical tensions in the Middle East looks as though as they’ve inflamed further, following the (alleged) Iranian-backed attack on a key oil facility in Saudi Arabia. Naturally, the eye will move straight to the oil price to judge the attack’s material impacts. One assumes we’ll see a pop in oil prices early today, as the major disruption to global production and supply is priced-in. But the greater curiosity will be in whether this event leads a significant lift in volatility in broader markets, given the heightened risk of war in the Middle East.
Stocks finished the week quite flat. However, the data received was at least a little heartening. The focus was on the US consumer. Retail Sales and Consumer Sentiment figures were printed, and on balance, delivered solid-enough readings, easing very marginally some level of concern about the risk of an imminent US recession.
Of course, good economic data, in the short-term, does little for liquidity hungry stock markets, so Wall Street closed practically flat, and that’s setting up the ASX200 for a marginally negative start today, according to SPI Futures. But the better barometers of global economic health are showing signs of marginally better sentiment. Bond yields continued to edge higher on Friday, pushing gold prices down further below $US1500. The Japanese Yen is still falling, too. The VIX is making a foray into the 13 mark, showing investors are primed for risk-taking, provided some free air. This is not discounting, of course, the attack over the weekend in Saudi Arabia.
And welcome to today’s Markets Live blog.
Your editor today is Lucy Battersby (firstname.lastname@example.org).
This blog is not intended as financial advice.