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Friday, 07 December 12
A NEW PHASE FOR AUSTRALIAN RESOURCES - A FITCH STREET INTERVIEW
 This week Matt Jamieson spoke with Andrew Colquhoun in Fitch's Asian sovereign rating team, and Vicky Melbourne, Fitch's commodity analyst based in Sydney, about the outlook for the Australian resources sector. Andrew and Vicky commented that Australia's resources sector is likely to enter a new phase based on sustainable volume growth, and that a high AUD/USD exchange rate is likely to persist with potentially negative implications for the non-resource economy. In this context Australia's large miners are likely to benefit from ongoing growth in commodity exports to China, notwithstanding lower commodity prices. Matt is Head of APAC Research in Fitch's Corporate Ratings Group.
Matt: Back in August 2012, Australia's Resources and Energy Minister made a comment to the effect that Australia's resources boom is over. Does Fitch agree with this view?
Vicky: No, we wouldn't subscribe to such a simplified view. Rather we believe the sector is entering a new and, perhaps, more sustainable growth phase focused on volumes, as opposed to the previous period of growth and investment based on high commodity prices. At the same time we believe that commodity prices are unlikely to return to previous high levels, and with mining cost inflation remaining stubbornly high, this may force the exit or consolidation of those miners with high-cost structures. This will result in a lower level of investment growth in the mining sector over the medium-to long-term, and related industries will be negatively impacted.
However, at least for the short-term, absolute investment levels are still growing. According to the Australian Bureau of Statistics's September capex survey, nominal spend in mining for 2012-13 is expected to increase 17.1% to AUD109bn which is only 3.5% lower than their estimate at the start of the year.
Matt: What will be impact of lower commodity prices and lower investment over the medium-to long-term on the Australian mining sector, and particularly for the larger players rated by Fitch?
Vicky: For the larger and more cost-efficient players, such as BHP Billiton Limited/Plc (BHP; 'A+'/Stable) and Rio Tinto Limited/Plc ( 'A-'/Stable), what they may lose in price, they are likely to make up for in terms of volume, particularly given their expansion over the past two to three years. Although these large miners have announced some curtailment to their expansion in light of China's slowdown, the potential for volume growth remains. Their free cash flow generation is also likely to increase as a result of a containment in operating costs and lower capex. Fortescue Metals Group Limited (Fortescue; 'BB+'/Negative), on the other hand, will benefit from a step-change in production volume and from becoming a lower cost iron ore producer from 2013 as its new Solomon Hub comes on line.
Matt: To what extent will the Australian economy be negatively impacted by the miners' likely reduction in investments and capital expenditure?
Vicky: Not substantially. At present, there are 87 mining industry projects committed and/or underway worth AUD268bn, with the majority of these in liquefied natural gas, and the balance in iron ore and coal. This represents a significant pipeline of investments despite the capex reductions announced by several entities. The bulk of this spending will peak in 2014 because of long lead times on projects, which means they will continue to provide a meaningful contribution to the Australian economy for at least two more years.
The main reduction in planned investments is related to uncommitted/not yet approved projects such as BHP's Olympic Dam, which now look unattractive given the current stage of the commodity cycle and the greater focus on capital allocations.
Matt: Andrew, what's your perspective on this? With China's economic growth slowing, does it not follow that Australia's resources sector is likely to face weakening demand?
Andrew: To the contrary, we think demand for Australia's resources from China will remain robust, although it is unlikely to grow as strongly in the next 10 years as it did in the previous decade. The chance of a Chinese "hard landing" in the near term appears to be diminishing and is certainly not Fitch's base case. Fitch still expects China to grow in the 7%-8% range over the next two to three years, albeit slower than the 9%-10% level achieved over 2009 to 2011. Importantly the size of China's economy is now around 40% greater than it was in 2008.
Under new leadership China will face the challenge of rebalancing its economy away from investment towards consumption. Even if the rate of China's growth in investment is not as strong as was the case historically, nonetheless a significant amount of investment still remains to occur. Its urbanisation rate is well below that of advanced countries, meaning that there is still a substantial amount of buildings and infrastructure to be built.
Matt: So Fitch actually expects demand for Australian resources to continue growing over the next two to three years?
Andrew: Yes. Chinese demand for key commodities including iron ore and coal will continue to grow in an absolute sense over the next two to three years, supported by government programmes to expand infrastructure and social housing construction. So while there may be fluctuations in China's demand for Australian resources in the short term, demand should continue growing over the long term.
Moreover, there is the rest of emerging Asia to consider. For example India took 6% of Australia's exports in 2011, well below China's 27% but up from 2% in 2001, and India is at an earlier stage of development than China.
Matt: Despite a lot of negative news on China's slowdown, and declines in commodity prices, the AUD/USD exchange rate has not significantly depreciated. What's behind this?
Andrew: It is partly a function of the continued strength in Australia's terms of trade due to still high commodity prices, and partly owing to the AUD gaining "reserve currency" status to some extent as global investors seek to diversify out of USD and EUR assets. The Australian sovereign is rated 'AAA' and the AUD is now the world's fifth-most traded currency.
Matt: These factors suggest that the AUD effective exchange rate could remain high even if commodity prices weaken, particularly if overall demand for Australia's resources remains strong. How will the rest of Australia's economy be able to cope?
Andrew: It will be a big challenge, but non-resource sectors will have to remain competitive by strengthening productivity to compete globally. The alternative, if companies cannot increase their productivity, is higher unemployment. The most likely outcome is probably a bit of both, depending on the particular industry and on government structural policies.
Matt: Vicky, a final question then. In light of Andrew's comments, outside of the resources industry what corporate sectors in Australia are most at risk to a higher effective exchange rate?
Vicky: The impact on the non-resource economy is significant, particularly on Australia's tourism industry, both local and inbound, on the country's export-reliant agriculture sector, and on its retail and manufacturing sectors. A higher cost base attributed to the strong AUD continues to negatively impact Australia's auto sector - and that is despite government subsidies. The Australian Industry Group's measure of manufacturing activity showed a ninth straight month of contraction in November as firms complained of soft demand, higher energy costs and a strong Australian dollar. Moreover, with most key industries under pressure, the negative spillover facing Australia's small-and-medium sized enterprises is significant.
Australia's retail sector and discretionary spending feed off the tourism industry, particularly in states like Queensland. The retail sector is already struggling from the proliferation of online shopping, and hence additional pressure due to a high exchange rate only compounds their difficulties. A high exchange rate also makes it more attractive for the larger supermarkets to source their own-brand foods and products from overseas as opposed to local producers, as they look to deliver on their "everyday low prices" campaigns. Finally, a weak retail sector has a knock-on effect on the commercial property sector.
Vicky Melbourne - Head of Industrials - South-East Asia & Australasia
Andrew Colquhoun - Head of APAC Sovereign Ratings, Hong Kong
Matt Jamieson - Head of APAC Research - Corporate Ratings Group, Seoul
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Wednesday, 22 November 23
INDIA: GOVERNMENT PLANS 1.4 BILLION TONNE COAL OUTPUT BY 2027 - LIVEMINT
The Union coal ministry on Monday announced plans to increase India’s coal production to 1.404 billion tonne by 2027, with an eye to further ...
Wednesday, 22 November 23
OBLIGATION. INDONESIA AIMS TO START COLLECTING LEVIES FROM COAL MINERS IN JANUARY - REUTERS
Indonesia plans to start collecting levies from coal miners in January to be used to compensate miners who sell coal to the state utility at lower ...
Tuesday, 21 November 23
INDIAN COAL POWER PLANTS’ CAPACITY UTILISATION WILL IMPROVE TO 65% THIS FISCAL: - CRISIL
Coal-based thermal power units’ plant load factor (PLF) or capacity utilisation will improve to 65 percent in the current fiscal year despite ...
Tuesday, 14 November 23
CAPITAL PRODUCT PARTNERS L.P. ANNOUNCES TRANSFORMATIVE TRANSACTION INCLUDING THE ACQUISITION OF 11 NEWBUILD LNG CARRIERS FOR $3.1 BILLION
Capital Product Partners L.P. announced that it has entered into an umbrella agreement (the “Umbrella Agreement”) with Capital Maritime ...
Tuesday, 14 November 23
COAL INDIA BEATS Q2 PROFIT VIEW ON HIGH POWER DEMAND AMID WEAK MONSOON - REUTERS
Coal India on Friday reported better-than-expected second-quarter profit, helped by high power demand and boosted production amid a weak monsoon.
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Showing 71 to 75 news of total 6871 |
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- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Agrawal Coal Company - India
- Meralco Power Generation, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Aditya Birla Group - India
- Heidelberg Cement - Germany
- VISA Power Limited - India
- San Jose City I Power Corp, Philippines
- Wilmar Investment Holdings
- Edison Trading Spa - Italy
- Commonwealth Bank - Australia
- London Commodity Brokers - England
- Goldman Sachs - Singapore
- Timah Investasi Mineral - Indoneisa
- Asmin Koalindo Tuhup - Indonesia
- Manunggal Multi Energi - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Global Coal Blending Company Limited - Australia
- PTC India Limited - India
- Vedanta Resources Plc - India
- Pipit Mutiara Jaya. PT, Indonesia
- Price Waterhouse Coopers - Russia
- Gujarat Mineral Development Corp Ltd - India
- Kumho Petrochemical, South Korea
- Bulk Trading Sa - Switzerland
- Bhoruka Overseas - Indonesia
- Independent Power Producers Association of India
- Singapore Mercantile Exchange
- Planning Commission, India
- Bhushan Steel Limited - India
- Pendopo Energi Batubara - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Bhatia International Limited - India
- Kapuas Tunggal Persada - Indonesia
- New Zealand Coal & Carbon
- Ind-Barath Power Infra Limited - India
- Coastal Gujarat Power Limited - India
- LBH Netherlands Bv - Netherlands
- Indogreen Group - Indonesia
- Australian Coal Association
- Power Finance Corporation Ltd., India
- Rio Tinto Coal - Australia
- Renaissance Capital - South Africa
- Sinarmas Energy and Mining - Indonesia
- The University of Queensland
- Intertek Mineral Services - Indonesia
- Indo Tambangraya Megah - Indonesia
- GMR Energy Limited - India
- Cigading International Bulk Terminal - Indonesia
- Sical Logistics Limited - India
- Maheswari Brothers Coal Limited - India
- MS Steel International - UAE
- Mintek Dendrill Indonesia
- Sree Jayajothi Cements Limited - India
- The Treasury - Australian Government
- GN Power Mariveles Coal Plant, Philippines
- Videocon Industries ltd - India
- Antam Resourcindo - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- TNB Fuel Sdn Bhd - Malaysia
- Essar Steel Hazira Ltd - India
- Bayan Resources Tbk. - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Straits Asia Resources Limited - Singapore
- Xindia Steels Limited - India
- Carbofer General Trading SA - India
- Meenaskhi Energy Private Limited - India
- Ministry of Transport, Egypt
- Barasentosa Lestari - Indonesia
- Global Green Power PLC Corporation, Philippines
- Globalindo Alam Lestari - Indonesia
- European Bulk Services B.V. - Netherlands
- ICICI Bank Limited - India
- CIMB Investment Bank - Malaysia
- Mjunction Services Limited - India
- Chamber of Mines of South Africa
- Thiess Contractors Indonesia
- Madhucon Powers Ltd - India
- Central Java Power - Indonesia
- Latin American Coal - Colombia
- Alfred C Toepfer International GmbH - Germany
- Binh Thuan Hamico - Vietnam
- IEA Clean Coal Centre - UK
- Toyota Tsusho Corporation, Japan
- International Coal Ventures Pvt Ltd - India
- SMG Consultants - Indonesia
- Deloitte Consulting - India
- Uttam Galva Steels Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Orica Australia Pty. Ltd.
- Tata Chemicals Ltd - India
- Eastern Coal Council - USA
- Thai Mozambique Logistica
- Larsen & Toubro Limited - India
- Mercator Lines Limited - India
- Trasteel International SA, Italy
- White Energy Company Limited
- Simpson Spence & Young - Indonesia
- Dalmia Cement Bharat India
- Indonesian Coal Mining Association
- Offshore Bulk Terminal Pte Ltd, Singapore
- Aboitiz Power Corporation - Philippines
- Vizag Seaport Private Limited - India
- Coalindo Energy - Indonesia
- Global Business Power Corporation, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- TeaM Sual Corporation - Philippines
- Samtan Co., Ltd - South Korea
- Port Waratah Coal Services - Australia
- Jaiprakash Power Ventures ltd
- Petron Corporation, Philippines
- Kalimantan Lumbung Energi - Indonesia
- GAC Shipping (India) Pvt Ltd
- Marubeni Corporation - India
- SN Aboitiz Power Inc, Philippines
- Central Electricity Authority - India
- Petrochimia International Co. Ltd.- Taiwan
- Directorate General of MIneral and Coal - Indonesia
- Bharathi Cement Corporation - India
- Electricity Generating Authority of Thailand
- Karaikal Port Pvt Ltd - India
- Posco Energy - South Korea
- The State Trading Corporation of India Ltd
- AsiaOL BioFuels Corp., Philippines
- Economic Council, Georgia
- Wood Mackenzie - Singapore
- Miang Besar Coal Terminal - Indonesia
- Oldendorff Carriers - Singapore
- Coal and Oil Company - UAE
- Mercuria Energy - Indonesia
- Kepco SPC Power Corporation, Philippines
- Ministry of Mines - Canada
- Ambuja Cements Ltd - India
- Sarangani Energy Corporation, Philippines
- Sojitz Corporation - Japan
- Iligan Light & Power Inc, Philippines
- India Bulls Power Limited - India
- SMC Global Power, Philippines
- PowerSource Philippines DevCo
- Siam City Cement PLC, Thailand
- Bangladesh Power Developement Board
- Billiton Holdings Pty Ltd - Australia
- Formosa Plastics Group - Taiwan
- Bukit Makmur.PT - Indonesia
- Merrill Lynch Commodities Europe
- Gujarat Electricity Regulatory Commission - India
- CNBM International Corporation - China
- Orica Mining Services - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Sakthi Sugars Limited - India
- Malabar Cements Ltd - India
- Therma Luzon, Inc, Philippines
- Anglo American - United Kingdom
- Metalloyd Limited - United Kingdom
- Kaltim Prima Coal - Indonesia
- IHS Mccloskey Coal Group - USA
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kartika Selabumi Mining - Indonesia
- PNOC Exploration Corporation - Philippines
- Leighton Contractors Pty Ltd - Australia
- Parliament of New Zealand
- Bukit Baiduri Energy - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Salva Resources Pvt Ltd - India
- Cement Manufacturers Association - India
- Banpu Public Company Limited - Thailand
- Savvy Resources Ltd - HongKong
- Australian Commodity Traders Exchange
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Riau Bara Harum - Indonesia
- Ministry of Finance - Indonesia
- Romanian Commodities Exchange
- Indian Energy Exchange, India
- Tamil Nadu electricity Board
- Georgia Ports Authority, United States
- Kobexindo Tractors - Indoneisa
- Altura Mining Limited, Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Medco Energi Mining Internasional
- OPG Power Generation Pvt Ltd - India
- Star Paper Mills Limited - India
- Energy Development Corp, Philippines
- Africa Commodities Group - South Africa
- Kohat Cement Company Ltd. - Pakistan
- Semirara Mining and Power Corporation, Philippines
- GVK Power & Infra Limited - India
- Indika Energy - Indonesia
- Indian Oil Corporation Limited
- Eastern Energy - Thailand
- Bukit Asam (Persero) Tbk - Indonesia
- Grasim Industreis Ltd - India
- Baramulti Group, Indonesia
- McConnell Dowell - Australia
- Parry Sugars Refinery, India
- Semirara Mining Corp, Philippines
- Sindya Power Generating Company Private Ltd
- Gujarat Sidhee Cement - India
- Makarim & Taira - Indonesia
- Jindal Steel & Power Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Kideco Jaya Agung - Indonesia
- Siam City Cement - Thailand
- Chettinad Cement Corporation Ltd - India
- ASAPP Information Group - India
- Directorate Of Revenue Intelligence - India
- Standard Chartered Bank - UAE
- Electricity Authority, New Zealand
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Lanco Infratech Ltd - India
- South Luzon Thermal Energy Corporation
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Energy Link Ltd, New Zealand
- Minerals Council of Australia
- Maharashtra Electricity Regulatory Commission - India
- Interocean Group of Companies - India
- Attock Cement Pakistan Limited
- Borneo Indobara - Indonesia
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