8th Dec 2015 12:11
LONDON (Alliance News) - London's commodity sector weighed down UK stock indices midday Tuesday, as Anglo American announced its intention to suspend its dividend and cut expenditure to adjust the business to be more competitive in an environment of falling commodity prices.
The FTSE 100-listed miner traded down 8.9%, after it said it was setting out an "accelerated and more radical restructuring programme to redefine the focus of its asset portfolio to transform the company's competitive position and create a more resilient business to deliver sustainable shareholder returns."
Anglo American intends to reduce its assets by 60%. It wants to sell more assets to build on the USD2.00 billion generated from asset disposals so far, and plans to double that amount by selling other assets related to phosphates and niobium, it said.
Anglo American will then focus on its best assets, consolidating its units to three from six. The new divisions will focus on its diamond unit De Beers, Industrial Metals and Bulk Commodities.
Anglo American also will suspend its dividend for the second half of 2015 and for 2016. Once the dividend resumes, the miner plans to change its policy so it is more in line with earnings.
On top of that, Anglo American will cut another USD1.00 billion of capital expenditure before the end of 2016.
IG's market analyst Alastair McCaig said Anglo American, like all of its mining sector peers, found there is no more fat to be cut and has had to face the reality that it could no longer pay out the dividend.
"Where one goes, others will follow and the possibility that BHP Billiton or Rio Tinto might be forced into similar action now looks increasingly likely," McCaig added.
Mining stocks dominated the fallers list in the FTSE 100, with Glencore down 8.8%, Rio Tinto down 5.6% and BHP Billiton down 5.5%. The FTSE 350 Mining sector index was the worst performing sector index, down 5.8% and hitting its lowest level since August 2004.
The weakness in the mining sector dragged on the broader UK equity indices, with the FTSE 100 trading down 0.8% at 6,172.31 points, the FTSE 250 was down 0.6% at 17,255.09 and the AIM All-Share down 0.6% at 737.47.
European shares also were trading lower. The CAC 40 index in Paris was down 0.9% and the DAX 30 in Frankfurt was down 1.1%.
"Despite the FTSE traditionally bearing the brunt of the commodity losses, the Eurozone wasn't immune to its effects this morning," said Connor Campbell, financial analyst at Spreadex. "News that the region's Q3 GDP was unchanged at 0.3% failed to improve matters, with investors lingering on the dismal French trade deficit data and the overall bearishness induced by Tuesday's commodity collapse."
Data published by Eurostat confirmed growth in the eurozone economy eased slightly in the third quarter. Gross domestic product grew 0.3% quarter-on-quarter in the third quarter, which was marginally below the 0.4% expansion seen in the second quarter, but matched the initial estimate.
Year-on-year, GDP climbed 1.6% in the third quarter, the same rate of growth as seen in the second quarter. The annual growth rate also matched economists' expectations.
Meanwhile France's trade deficit increased in October from the previous month, as exports fell and imports rose, figures from the French Customs showed. The trade deficit widened to EUR4.6 billion in October from EUR3.6 billion in September. In the corresponding month last year, the shortfall was EUR4.4 billion.
US futures indicated a lower open for Wall Street. The DJIA, S&P 500 and Nasdaq 100 were all pointed down 0.6%.
While mining stocks were deeply in the red, Chinese trade data provided some support to commodity prices. Exports in the country decreased 6.8% in November from last year, the General Administration of Customs reported. Shipments were forecast to drop at a slightly slower pace of 5% after falling 6.9% in October.
At the same time, imports slid 8.7% annually, but fared better than an expected decline of 11.6% and an 18.8% fall seen in October. Jasper Lawler, market analyst at CMC Markets, said the mixed Chinese data helped cushion the rout in commodities with oil, gold and copper all slightly higher.
"Data showed China's imports of copper jumped 10% in November from a year earlier helping copper prices rise," Lawler explained.
Oil prices were posting a modest rebound after hitting near seven-year lows on Monday. Brent oil was trading at USD41.41 a barrel, up from the low of USD40.58 a barrel and West Texas Intermediate was at USD38.01 a barrel, up from USD37.48 on Monday.
In the UK, industrial production grew slightly as expected in October, figures from the Office for National Statistics showed. Industrial output edged up 0.1% in October from September, when it remained flat. The monthly growth rate came in line with expectations.
However, manufacturing output declined for the first time in three months in October. Output fell 0.4% month-on-month, reversing a 0.9% rise in September. Output was expected to drop marginally by 0.2%.
Among individual UK stocks, Wm Morrison Supermarkets was up 1.9% at 148.50 pence after being upgraded to Hold from Reduce by HSBC, with an unchanged 150.00 pence price target. Though not mentioned in the HSBC note, rival supermarkets rose as well, with Tesco up 1.9% and J Sainsbury up 2.2%.
Bucking the weakness in resource stocks, oil and gas firm EnQuest was up 6.6% after it said production should significantly rise in 2016 after experiencing strong production in the second half of 2015, and said it will complete its cost reduction programme ahead of schedule.
The company said production between July and the end of November averaged 35,022 barrels of oil equivalent per day, which was up 26% from the same period a year ago. It is also a huge leap from the 29,665 barrels per day being produced on average in the first half of 2015.
On AIM, Cenkos Securities traded up 15% after the stockbroker said it is not under investigation by the UK's Serious Fraud Office. Cenkos said it has "not been asked to provide, and nor has it provided, any information" to the SFO in relation to any investigation.
"The company is currently working with its advisers to address and rectify the position in relation to the inaccurate reporting referred to above," Cenkos said in a statement, referring to an article in The Sunday Times.
Cenkos used to be the nominated adviser to Quindell, now Watchstone Group, which is under investigation by the SFO over its past business and accounting practices.
Still ahead in the economic calendar, US Redbook index is due at 1355 GMT, while JOLTS job openings data are expected at 1500 GMT, alongside the NIESR's UK GDP Estimate for the third-quarter.
By Neil Thakrar; [email protected]; @NeilThakrar1
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