Johannesburg - The sharp overnight fall in the oil price caused havoc in the JSE resources sector.
The share prices of Sasol [JSE:SOL] and BHP Billiton [JSE:BIL], two of the biggest companies in the resources sector, dropped sharply on Friday morning and by midday both were more than 5% lower. Both these companies have big exposure to the oil price and were trading at new 52-week lows.
The lower oil price also put pressure on the prices of other basic commodities, and therefore on the share prices of the producers of those commodities like iron ore and manganese.
The result was that the Resources index by Friday midday was already 4.30% lower than the previous day.
The oil price drop also pushed the gold price down on expectations that plunging oil prices could relieve inflationary pressures worldwide, and gold is seen as an important hedge against high inflation. The gold price reached its lowest level in a week and the Gold index lost another 2.42%.
READ: Gold drops to one-week low as oil slumps
The Financial and Industrial indices were still marginally in the black, but it not enough to keep the major indices higher. By midday the All-share index lost 0.69% to 50 208 points and the Top 40 index, which includes both Sasol and BHP Billiton, was 0.91% weaker at 44 501 points.
Oil hit four-year lows at around $70 a barrel on Thursday, as the Organisation of the Petroleum Exporting Countries (Opec) resisted the temptation to cut back production following an oil price plunge of more than 30% since June.
READ: Opec won't cut output despite oil price dip
The sharp drop in the oil price is dire news for Sasol as the price of its fuel production from coal is linked to the international oil price.
By midday Sasol’s share price was already 7.65% lower at a new 52-week low after trading at a 52-week high of R645.10 as recently as June 16, almost a third higher than the current price. Friday’s decline wiped out all the gains of the past year, and the share price is now 0.4% lower for the year.
The rand weakened slightly against the dollar, which strengthened on expectations of lower inflation, but the weaker rand was not enough to hedge Sasol’s income against the softer oil price.
READ: Rand outperforms oil-linked units on Brent dive
BHP Billiton, which is linked to the oil price through oil production facilities, lost 5.06% on Friday morning to R263.94, beating the previous 52-week low of R271.77 set last week. The share was on a 52-week high of R376.25 as recently as July 29 this year, but has lost 24.6% over the last three months and is now 11.3% lower for the year.
BHP Billiton is a big producer of iron ore, which is also trading at record lows.
The other iron producers were again under pressure on Friday morning. Assore [JSE:ASR] lost 4.02% to R183.00 and is now again more than 50% lower for the year. Kumba [JSE:KIO] traded 3.44% lower at R254.35 and is now 32.4% lower for the year.
Anglo American [JSE:AGL] lost 1.56% to R231.34 and is one of only a few resources companies over the last 12 months whose share price is still delivering a positive return.
The Industrial index was only 0.15% stronger at just below 62 000, and Imara SP Reid in its daily Market Snapshot said this is still a significant resistance level as breaching it would support the overall technical picture, which retains bias towards the upside.
The Financial index gained 0.37% and Imara SP Reid the banking counters have recovered some of their lost momentum.