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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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Monday, 17 July 23
APPROVED AMMONIA-FUELED CONTAINERSHIP - BENEFITS AND RISKS: REED SMITH
Following the news in Offshore Energy that Korea Maritime Consultants has secured approval in principle from the American Bureau of Shipping for it ...
Friday, 14 July 23
CLEAN COAL USE KEY TO DEEP CUTS IN EMISSIONS, STABLE ELECTRICITY SUPPLY - CHINA DAILY
China must push for the clean use of coal and step up integration of the dirty fuel with carbon capture, utilization and storage to achieve sustain ...
Thursday, 13 July 23
VIETNAM'S COAL EMISSIONS PRIMED FOR SURGE AFTER IMPORTS JUMP - REUTERS
Vietnam’s thermal power emissions are primed for a steep climb this summer after the country’s imports of thermal coal soared to their ...
Monday, 26 June 23
COAL PRODUCTION AND CONSUMPTION UP IN 2022 - EUROSTAT
In 2022, EU coal production and consumption continued to increase, reaching 349 million tonnes (+5% compared with the previous year) and 454 millio ...
Wednesday, 21 June 23
QATAR STRIKES SECOND BIG LNG SUPPLY DEAL WITH CHINA - REUTERS
Qatar on Tuesday secured its second large gas supply deal with a Chinese state-controlled company in less than a year, putting Asia clearly ahead i ...
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Showing 91 to 95 news of total 6871 |
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- Siam City Cement - Thailand
- SMC Global Power, Philippines
- Meralco Power Generation, Philippines
- Australian Commodity Traders Exchange
- Cigading International Bulk Terminal - Indonesia
- The University of Queensland
- Tamil Nadu electricity Board
- Sree Jayajothi Cements Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Minerals Council of Australia
- Global Green Power PLC Corporation, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Kobexindo Tractors - Indoneisa
- The State Trading Corporation of India Ltd
- Central Java Power - Indonesia
- Merrill Lynch Commodities Europe
- Interocean Group of Companies - India
- Ind-Barath Power Infra Limited - India
- PNOC Exploration Corporation - Philippines
- India Bulls Power Limited - India
- Goldman Sachs - Singapore
- Eastern Coal Council - USA
- Latin American Coal - Colombia
- Aditya Birla Group - India
- Sarangani Energy Corporation, Philippines
- Sojitz Corporation - Japan
- Bhatia International Limited - India
- Medco Energi Mining Internasional
- Gujarat Electricity Regulatory Commission - India
- Trasteel International SA, Italy
- Gujarat Mineral Development Corp Ltd - India
- Jindal Steel & Power Ltd - India
- Star Paper Mills Limited - India
- White Energy Company Limited
- Africa Commodities Group - South Africa
- Siam City Cement PLC, Thailand
- Xindia Steels Limited - India
- Power Finance Corporation Ltd., India
- SMG Consultants - Indonesia
- Antam Resourcindo - Indonesia
- Independent Power Producers Association of India
- Attock Cement Pakistan Limited
- IEA Clean Coal Centre - UK
- Formosa Plastics Group - Taiwan
- Rashtriya Ispat Nigam Limited - India
- Kideco Jaya Agung - Indonesia
- Binh Thuan Hamico - Vietnam
- Leighton Contractors Pty Ltd - Australia
- Straits Asia Resources Limited - Singapore
- Bulk Trading Sa - Switzerland
- Vedanta Resources Plc - India
- Economic Council, Georgia
- Bharathi Cement Corporation - India
- Petron Corporation, Philippines
- Holcim Trading Pte Ltd - Singapore
- Thai Mozambique Logistica
- Oldendorff Carriers - Singapore
- OPG Power Generation Pvt Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Bayan Resources Tbk. - Indonesia
- Indogreen Group - Indonesia
- Electricity Generating Authority of Thailand
- Romanian Commodities Exchange
- Larsen & Toubro Limited - India
- Coal and Oil Company - UAE
- Uttam Galva Steels Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- VISA Power Limited - India
- Ministry of Finance - Indonesia
- Eastern Energy - Thailand
- CIMB Investment Bank - Malaysia
- Bahari Cakrawala Sebuku - Indonesia
- Parry Sugars Refinery, India
- Vizag Seaport Private Limited - India
- Semirara Mining Corp, Philippines
- South Luzon Thermal Energy Corporation
- Sindya Power Generating Company Private Ltd
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- PetroVietnam Power Coal Import and Supply Company
- Edison Trading Spa - Italy
- London Commodity Brokers - England
- Sakthi Sugars Limited - India
- Altura Mining Limited, Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Directorate Of Revenue Intelligence - India
- Heidelberg Cement - Germany
- Marubeni Corporation - India
- Kalimantan Lumbung Energi - Indonesia
- Videocon Industries ltd - India
- Ministry of Mines - Canada
- Indonesian Coal Mining Association
- Rio Tinto Coal - Australia
- Toyota Tsusho Corporation, Japan
- IHS Mccloskey Coal Group - USA
- Petrochimia International Co. Ltd.- Taiwan
- Ministry of Transport, Egypt
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kepco SPC Power Corporation, Philippines
- Energy Link Ltd, New Zealand
- Bhushan Steel Limited - India
- European Bulk Services B.V. - Netherlands
- Mintek Dendrill Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- CNBM International Corporation - China
- Price Waterhouse Coopers - Russia
- Iligan Light & Power Inc, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Global Business Power Corporation, Philippines
- Timah Investasi Mineral - Indoneisa
- GAC Shipping (India) Pvt Ltd
- Wood Mackenzie - Singapore
- Savvy Resources Ltd - HongKong
- Australian Coal Association
- Electricity Authority, New Zealand
- Deloitte Consulting - India
- Parliament of New Zealand
- Intertek Mineral Services - Indonesia
- Georgia Ports Authority, United States
- Neyveli Lignite Corporation Ltd, - India
- TeaM Sual Corporation - Philippines
- AsiaOL BioFuels Corp., Philippines
- Karbindo Abesyapradhi - Indoneisa
- Bank of Tokyo Mitsubishi UFJ Ltd
- Mercuria Energy - Indonesia
- Chettinad Cement Corporation Ltd - India
- PTC India Limited - India
- Cement Manufacturers Association - India
- Mercator Lines Limited - India
- Coastal Gujarat Power Limited - India
- Kaltim Prima Coal - Indonesia
- The Treasury - Australian Government
- Renaissance Capital - South Africa
- Central Electricity Authority - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Mjunction Services Limited - India
- Singapore Mercantile Exchange
- Semirara Mining and Power Corporation, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- LBH Netherlands Bv - Netherlands
- Orica Australia Pty. Ltd.
- GMR Energy Limited - India
- Riau Bara Harum - Indonesia
- Lanco Infratech Ltd - India
- Makarim & Taira - Indonesia
- Essar Steel Hazira Ltd - India
- Energy Development Corp, Philippines
- SN Aboitiz Power Inc, Philippines
- Simpson Spence & Young - Indonesia
- Agrawal Coal Company - India
- Commonwealth Bank - Australia
- Tata Chemicals Ltd - India
- Grasim Industreis Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Global Coal Blending Company Limited - Australia
- International Coal Ventures Pvt Ltd - India
- GVK Power & Infra Limited - India
- Miang Besar Coal Terminal - Indonesia
- Barasentosa Lestari - Indonesia
- Meenaskhi Energy Private Limited - India
- Ceylon Electricity Board - Sri Lanka
- Sical Logistics Limited - India
- New Zealand Coal & Carbon
- Metalloyd Limited - United Kingdom
- Bukit Makmur.PT - Indonesia
- Thiess Contractors Indonesia
- Orica Mining Services - Indonesia
- Baramulti Group, Indonesia
- PowerSource Philippines DevCo
- Sinarmas Energy and Mining - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Kumho Petrochemical, South Korea
- Banpu Public Company Limited - Thailand
- Malabar Cements Ltd - India
- Manunggal Multi Energi - Indonesia
- Indika Energy - Indonesia
- Bhoruka Overseas - Indonesia
- Dalmia Cement Bharat India
- Borneo Indobara - Indonesia
- Samtan Co., Ltd - South Korea
- Gujarat Sidhee Cement - India
- McConnell Dowell - Australia
- Billiton Holdings Pty Ltd - Australia
- San Jose City I Power Corp, Philippines
- Ambuja Cements Ltd - India
- Anglo American - United Kingdom
- Bukit Baiduri Energy - Indonesia
- Posco Energy - South Korea
- GN Power Mariveles Coal Plant, Philippines
- Maheswari Brothers Coal Limited - India
- Jaiprakash Power Ventures ltd
- Coalindo Energy - Indonesia
- Indo Tambangraya Megah - Indonesia
- Carbofer General Trading SA - India
- Wilmar Investment Holdings
- Globalindo Alam Lestari - Indonesia
- Planning Commission, India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Madhucon Powers Ltd - India
- Standard Chartered Bank - UAE
- Chamber of Mines of South Africa
- ASAPP Information Group - India
- MS Steel International - UAE
- Indian Energy Exchange, India
- Indian Oil Corporation Limited
- Salva Resources Pvt Ltd - India
- Therma Luzon, Inc, Philippines
- Kartika Selabumi Mining - Indonesia
- ICICI Bank Limited - India
- Port Waratah Coal Services - Australia
- Aboitiz Power Corporation - Philippines
- Alfred C Toepfer International GmbH - Germany
- Karaikal Port Pvt Ltd - India
- Pendopo Energi Batubara - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Bangladesh Power Developement Board
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