Building products supplier CSR expects a sharp jump in energy costs over the next year and has warned that Australian manufacturing businesses could face plant closures and job losses if the situation continues.
"There will be challenges in the year ahead, particularly as all of our businesses are facing higher energy costs," CSR's chairman Jeremy Sutcliffe told shareholders at the company's annual general meeting.
"The increase in energy costs will be one that many businesses, including CSR, will find extremely hard to recover, notwithstanding efficiency gains and cost control."
The company has estimated the total energy bill for its main building products business will rise by 17 per cent from a year ago, to exceed $100 million in the next 12 months. Its Viridian glass business will be particularly impacted as it faces strong import competition from exporting nations not facing similar energy cost imposts, he said.
Despite the rising costs, CSR has outlined a strong earnings outlook, with earnings for the year to March 2018 expected to be higher than in the previous year.
Earnings would be helped by higher profits from the property division and benefits from hedging positions taken in aluminium, Sutcliffe said.
The company has also used the improvement in short term aluminium pricing to increase its hedging position over the next three years, in an effort to reduce future earnings volatility.
Shares are up 0.7 per cent to $4.26.
Australia's latest population milestone is sure to reignite the immigration debate, Michael Pascoe writes:
In a few minutes, a little after lunch, the population clock on the Australian Bureau of Statistics website will tick over to 24.5 million.
The clock struck 24 million in February last year and, at the present rate of adding a net extra person every one minute and 22 seconds, it will hit 25 million in early October next year. Little Australia – and we are still little – continues to grow up.
With housing prices high in Sydney and Melbourne and national wages growth low, the anti-immigration forces are mustering on claimed economic grounds, as well as the usual populist fringe attacking as "un-Australian" whatever the latest wave of migrants might be.
Yet a strong multi-cultural nation is very Australian indeed. Some 28 per cent of us were born overseas, wave after wave absorbed. The sectarian xenophobes are the un-Australian minority.
Australia's particular problems in coping with population growth partly come from the strength of that growth being unexpected. Property analyst Pete Wargent observes there are some 2.95 million more of us today than was forecast by the ABS to be the case in 1999.
"That's not to decry the forecasts, which must be always be wrong to some extent," writes Wargent.
"Rather this is to show the potential scale of the impact from the mining boom on the creaking infrastructure deficit."
So, throw the new babies out with the infrastructure underinvestment bathwater, or rise to the challenge and fix the infrastructure?
There's been plenty of talk of a looming price war in the grocery market after Coles flagged higher investments at the recent Wesfarmers strategy day, but UBS analyst Ben Gilbert doubts that will happen.
"We view a price war as unlikely, and believe much of Coles increased 'investment' is the result of negative operating leverage, labour investment and to a lesser extent price," he says in a note to clients, calculating the probability of a price war at about 25 per cent (up from 20% previously).
Gilbert views the market as rational and expects industry margins to bottom this financial year, with the outlook for grocery improving following the lowest growth in more than 30 years over financial year 2016.
Gilbert also reckons that consensus margin forecasts for Woolies are too low.
"Woolworths remains the greatest beneficiary of a rational market and improved growth as improved execution drives share gains and margin improvement," Gilbert says, adding he sees scope for an about 7 per cent upgrade to forecast financial year 2020 earnings.
UBS has a 'buy' recommendation on Woolies, despite the stock being "richly valuated", a 'hold' on Wesfarmers and a 'sell' on Metcash, saying that industry feedback suggested share loss for the latter had accelerated and top line pressure remain.
"Outside of a price war, a resurgent Aldi is the key risk to sector earnings, with Amazons entry in Australia/New Zealand fresh some way off, in our view," Gilbert says.
It is one of the heaviest shorted stocks on the market and it is easy to understand why, given lithium producer Orocobre's habit of catching investors off balance.
In February it was problems with evaporation rates at its project in Chile, which forced the company to warn of lost production. Heavy selling pushed the shares below $2.80 before they recovered lost ground.
Now, it is inclement weather, with unseasonably heavy snow which has again hit output with lithium carbonate production. June quarter output is now expected to come in at 2,400 - 2,500 tonnes, with fiscal 2017 production seen at 11,700 - 11,800 tonnes of lithium carbonate.
Unsurprisingly, the shares are off 5.3 per cent at $3.37.
Citi has taken the opportunity to downgrade its rating to neutral from 'buy', even though it has retained a $3.90 share price target for the shares.
It expects the announcement from late Thursday will have only a limited impact on the valuation of Orocobre's shares, especially since the poor weather is likely to help sustain the price of lithium carbonate, which is up around 11 per cent over the past few months.
Can you really blame South Australia for following Canberra's lead to the treasure chest?
The federal government has dismissed accusations from the business community that its bank tax "let the genie out of the bottle" and led to the South Australian government following suit in its budget released yesterday.
With the business community furious as what it now regards as open season on anyone turning a healthy profit, Prime Minister Malcolm Turnbull said the SA government was free to do as it wished. But he warned SA would put itself at a disadvantage by going it alone.
"The major bank levy that we imposed is a national and consistent levy on major bank liabilities," he said.
"The South Australian tax, that was announced yesterday, of course it's limited only to South Australia and the question that (Premier Jay) Weatherill has got to answer, is that, is his decision going to make business in South Australia more competitive or less competitive?
"That's one thing to have a tax that covers the whole country, but when a state imposes higher business taxes within its own jurisdiction, is that going to drive investment, support jobs within that state or is in fact going to make it less competitive?"
Ultimately, however, the Prime Minister did not condemn the move.
"The states have taxing powers and they can raise such taxes as they wish and they do," he said.
NAB has followed its peers by raising its variable rates for interest-only mortgages in a bid to slow down riskier lending, while cutting rates by a smaller amount for people paying down debt on a house in which they live.
NAB lifted interest-only rates for both owner-occupiers and investors by 0.35 percentage points as it looks to keep interest-only lending below less than 30 per cent of new residential mortgages, as demanded by APRA.
That compares with Westpac's 0.34 percentage point increase for the same types of customers this week, and ANZ's 0.3 percentage point rise two weeks ago.
NAB also dropped principal and interest variable rates for owner-occupiers by 0.08 percentage points following similar moves by ANZ and Westpac over the past two weeks.
Banks have in recent months charged people with interest-only loans a higher premium, after the Australian Prudential Regulation Authority in March introduced a new cap for this type of loan, which is most popular with property investors.
Shares have edged higher at the open, following the lead from global markets, but some losses in the big banks are holding the ASX back.
The benchmark index is up 0.3 per cent at 5722.3, with financials the main drag.
The big banks and Macquarie are all down around 0.5 per cent with the exception of Westpac, which has gained 0.6 per cent.
That may be because Westpac's shares were hit hardest late yesterday when news of South Australia's new bank levy first.
However, losses in the banks were higher in the first minutes of trade, showing that the reaction may be overdone.
The overall impact of the tax on the banks' earnings is likely to be negligible but investors are worried about the possibility of other states introducing similar taxes.
"In general terms this serves as a reminder that Australian shareholders generally and bank shareholders in particular, are in a period of heightened political risk that needs to be factored into investment decisions," says CMC chief market analyst Ric Spooner.
Most other sectors are posting gains, led by healthcare, which may be profiting from another record session for US stocks in the sector. CSL has gained 1 per cent to a new all-time high of $142.36.
The big miners are all higher thanks to gains in commodity prices overnight.
Bank analysts are really not liking the SA government's new levy on the big banks, warning of an "alarming trend" that's likely to keep the pressure on shares of the big four and Macquarie.
Assuming this levy is implemented, it will cost banks an additional $13 million to $16 million of earnings, or 0.1 to 0.2 per cent each, Macquarie analysts reckon.
But the bigger worry for the analysts is that it opens the possibility for other states to try and implement similar measures, effectively doubling the federal 6 basis point levy.
"We see the current challenging political landscape as an ongoing drag on sentiment for Australian banks and the market. This uncertainty is likely to result in share-price pressures and higher cost of capital for Australian corporates," the analysts warn.
Raiding the banks because they are "very profitable" is a concerning trend that, in Macquarie's view, is likely to alarm the investment community both domestically and offshore.
"To this extent, we see a discount valuation relative to history as justifiable with the banks currently trading at an about 6 per cent discount to their average 5yr price-earnings ratio relative to industrials."
Ardent Leisure has cut its second-half distribution to 1¢ from 5.5¢ last year and lowered its full-year earnings forecast as a result of falling sales at its key US business and reduced business at its Australian Dreamworld theme park.
Shares have opened 3 per cent lower at $2.07.
The troubled entertainment company forecast EBITDA profit at its Main Event Entertainment to fall to between $US44 million to $US45 million for the year to June 2017, well below the $US64 million it posted last year.
"Like-for-like [Main Event] constant centre sales growth for the fourth quarter is negative, but represents a solid improvement on third quarter trends," Ardent said in a statement.
"The trend has improved progressively through the second half of the year, with sequential month on month improvement during the fourth quarter.
"In addition, one planned FY17 store opening has been delayed into July and new store openings have been weighted towards the end of the year, with five of the 10 new stores opened in FY17 opening in the fourth quarter. Management believes the underlying Main Event proposition remains very positive."
The total 3¢ dividend for this financial year is less than a quarter of last year's total 12.5¢.
SPONSORED POST
As investors suffer the slings and arrows of outrageous fortune, IG analyst John Kicklighter sees some recurring patterns:
The market's are – so far – living out the expectations set by seasonality statistics. Last week's volatility charged by a round of major central bank announcements continues to deflate into this week. While we are not currently at the multi-year or record lows for the range of volatility measures for equities, FX, commodities, emerging markets and other key asset types; we are within stones throw. Historically speaking, June sees on average the lowest reading for the VIX of any calendar month.
Yet where activity may seem to be fulfilling deeply held beliefs by the seasoned trading rank, the backdrop speaks to less complacency and obliviousness than the popular measures suggest. Where key equity indexes are pushing to record highs and volatility measures to their lows, open interest behind Euro, VIX and Pound futures – all seemingly bound to range – while open interest behind the favourite S&P 500 emini futures levelled out a few years ago, despite the continued charge higher. What does that mean: a seemingly quiet surface, but concern and exceptional exposure beneath the surface.
Chinese equity markets are still glowing from the news earlier this week that the world's top ETF purveyor MSCI had decided to accept a range of A-shares from the country's stock market into its popular emerging market products. This is the financial market equivalent of the IMF's acceptance of the Yuan into its SDR basket.
In other words, it legitimises the country's markets and solidifies its place as a global player. That said, the world will accept its risks along with its opportunities. An official at the China Banking Regulatory Commission warned that a some large companies could pose a systemic risk to the country's banks. It is unusual to see such concerns aired openly, which has global investors even further unnerved.
The Norwegian crown was the main mover in an otherwise dormant market in major global currencies overnight, getting a lift after the country's central bank removed its explicit easing bias.
The bank also lifted its rate forecasts for 2017 and 2018, pushing the Norwegian crown, also known as the "Nokkie" by traders, half a per cent higher against the US dollar and the euro. It last stood up 0.4 per cent at 8.4987 crowns per US dollar and 9.4853 crowns per euro.
"It's (the move) is all about the change in their rate path - no longer seeing a possible probability of a rate cut but now moving their rate path unchanged for this year, next year, and then higher in 2019," said Niels Christensen, currency strategist with Nordea in Copenhagen.
Echoing comments from the Bank of Canada and from our own RBA governor, the statement said there were "signs of impending reversal in the decline in petroleum investment" with the prospect of a modest rise in the near term.
"It is clear that there has been a shift in central bank policy amongst the advanced commodity countries, who are seeing the drag from the mining/oil downturn bottoming and possibly becoming a tailwind in the near future," says NAB economist Tapas Strickland.
"The missing ingredient of course remains inflation and the Norges Bank forecasts inflation will hold below its target of 2.5 per cent through at least 2020 (note core inflation is currently 1.6 per cent)."
In case you missed it, the country's five biggest banks are embroiled in a new tax brawl, after South Australia's government infuriated banks by imposing a new levy on the financial giants it said were "significantly undertaxed".
The SA government led by Premier Jay Weatherill, who has long argued for financial services to be subject to GST, on Thursday afternoon announced a shock levy that is forecast to raise $370 million over the next four years from CBA, NAB, Westpac, ANZ and Macquarie.
The announcement partially reversed what had been a strong rally in the banks' shares yesterday.
Lenders lashed out at the move, with ANZ chief Shayne Elliott saying it was an "ill-considered cash grab", a NAB spokesman branding the tax "poor policy without logic", and Westpac calling the tax a "disgrace".
Australian Bankers' Association chief executive, former Queensland premier Anna Bligh, said tax policy in Australia had become "a joke" and warned the state's economy would suffer as a result of the tax hit. One of the government's chief allies, the Business Council of Australia, blamed the Turnbull government for the hit, after it introduced a bank tax in the budget.
Even so, another former Labor Premier, Geoff Gallop, said "ad hoc" policies such as the state-based bank tax were an inevitable consequence of failures to deal with problems in how the states are funded.
SA Treasurer Tom Koutsantonis said the tax would be structured in the same way as the federal government's levy, charged at a rate of 0.6 percentage points of liabilities. However, it will only apply to a share of bank liabilities equal to the state's share of the national economy.
"The banking sector is very profitable and a major bank levy is a fair and reasonable approach to ensuring the sector contributes its fair share," Mr Koutsantonis said.
Wall Street's S&P healthcare index rose 1 per cent overnight, hitting its fifth consecutive record close following the release of Senate Republicans' bill to replace Obamacare, while financial and consumer staple shares ended lower.
The legislation aims at curbing Medicaid funding and reshaping subsidies to low-income people for private insurance. US healthcare stocks have now risen 3.9 per cent as a group in five days.
The Nasdaq biotechnology index rose 1.3 per cent, for a 9.4 per cent jump so far this week. While it was not clear whether the bill would get enough support to become law, drug stocks were among the S&P 500's biggest gainers, with Gilead rising 4.4 per cent overnight.
"The initial proposal I think is more generous and more positive to the industry than expected," said Jeff Jonas, portfolio manager with Gabelli Funds.
The Dow Jones gave up early gains to end down 0.1 per cent. The S&P 500 lost a similar amount, while the Nasdaq Composite inched higher.
The S&P energy index ended down 0.1 percent after recording 3.5 per cent of losses in the previous three sessions on falling oil prices.
"Oil's had a tough run in the last handful of weeks. I wouldn't say oil being up today gives anybody a high degree of confidence we've seen a floor in oil yet," Michael Scanlon, managing director, portfolio manager at Manulife Asset Management in Boston.
Thursday's gains were muted as and investors looked forward to the second-quarter earnings season.
"US equities are trading at somewhat rich valuations," said Jason Pride, director of investment strategy at Glenmede in Philadelphia. "With earnings coming up that should provide upside pressure to stocks, but the valuations provide a counterbalance to that."
Economic data overnight showed jobless claims for last week increased by 3,000 to 241,000, but remain at levels consistent with a tight labor market.
Oracle's 8.6 per cent riseprovided the S&P with its biggest boost after the company forecast an upbeat current-quarter profit.
Good morning and welcome to the Markets Live blog for Friday.
Your editors today are Jens Meyer and Patrick Commins.
This blog is not intended as investment advice.
Fairfax Media with wires.
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