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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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Tuesday, 23 May 23
INDIA: COAL OUTPUT UP 8.9%, SUPPLY RISES 11.7% IN APRIL - FINANCIAL EXPRESS
India’s coal production jumped 8.85% to 73.14 million tonne (MT) in April 2023 and the total coal despatch during the month went up 11.66% to ...
Tuesday, 23 May 23
CHINA COAL OUTPUT UP 4.5 PCT IN APRIL - XINHUA
China’s raw coal output posted stable expansion in April, official data showed.
The country produced 380 million tonnes of raw ...
Saturday, 20 May 23
NON-OPEC OIL SUPPLY DEVELOPMENT - OPEC
In 2022, non-OPEC supply is estimated to have increased by 1.9 mb/d y-o-y. Out of this, US liquids production increased by 1.2 mb/d, mainly on the ...
Saturday, 20 May 23
GLOBAL COAL TRADE HAS REALLY PICKED UP PACE IN RECENT MONTHS, NOW FULLY BACK TO PRE-COVID LEVELS - BANCHERO COSTA
Global coal trade has really picked up pace in recent months, and is now fully back to pre-Covid levels. In Jan-Apr 2023, total global seaborne coa ...
Saturday, 20 May 23
MARKET INSIGHT - INTERMODAL
India is one of the world's largest coal producers and one of the world's largest importers of coal. The country uses coal mainly for power ...
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Showing 101 to 105 news of total 6871 |
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- Commonwealth Bank - Australia
- ASAPP Information Group - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Parry Sugars Refinery, India
- Alfred C Toepfer International GmbH - Germany
- CNBM International Corporation - China
- Larsen & Toubro Limited - India
- Independent Power Producers Association of India
- Simpson Spence & Young - Indonesia
- Coalindo Energy - Indonesia
- Tamil Nadu electricity Board
- Bukit Asam (Persero) Tbk - Indonesia
- Videocon Industries ltd - India
- Formosa Plastics Group - Taiwan
- Straits Asia Resources Limited - Singapore
- Goldman Sachs - Singapore
- Bhoruka Overseas - Indonesia
- Trasteel International SA, Italy
- IHS Mccloskey Coal Group - USA
- Mercuria Energy - Indonesia
- Kepco SPC Power Corporation, Philippines
- Power Finance Corporation Ltd., India
- Energy Development Corp, Philippines
- Sakthi Sugars Limited - India
- Banpu Public Company Limited - Thailand
- Miang Besar Coal Terminal - Indonesia
- Xindia Steels Limited - India
- Grasim Industreis Ltd - India
- Kartika Selabumi Mining - Indonesia
- GAC Shipping (India) Pvt Ltd
- Antam Resourcindo - Indonesia
- Eastern Energy - Thailand
- Romanian Commodities Exchange
- Bukit Baiduri Energy - Indonesia
- Bayan Resources Tbk. - Indonesia
- Kideco Jaya Agung - Indonesia
- Sojitz Corporation - Japan
- Electricity Generating Authority of Thailand
- Medco Energi Mining Internasional
- Rashtriya Ispat Nigam Limited - India
- ICICI Bank Limited - India
- Metalloyd Limited - United Kingdom
- Neyveli Lignite Corporation Ltd, - India
- Port Waratah Coal Services - Australia
- White Energy Company Limited
- PowerSource Philippines DevCo
- Coal and Oil Company - UAE
- Billiton Holdings Pty Ltd - Australia
- Indonesian Coal Mining Association
- Price Waterhouse Coopers - Russia
- Parliament of New Zealand
- Energy Link Ltd, New Zealand
- Ind-Barath Power Infra Limited - India
- Ceylon Electricity Board - Sri Lanka
- Binh Thuan Hamico - Vietnam
- Ministry of Finance - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- The University of Queensland
- Attock Cement Pakistan Limited
- MS Steel International - UAE
- Mercator Lines Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Posco Energy - South Korea
- Rio Tinto Coal - Australia
- Pipit Mutiara Jaya. PT, Indonesia
- Manunggal Multi Energi - Indonesia
- Dalmia Cement Bharat India
- Asmin Koalindo Tuhup - Indonesia
- Riau Bara Harum - Indonesia
- Ministry of Transport, Egypt
- Kohat Cement Company Ltd. - Pakistan
- Mjunction Services Limited - India
- Maheswari Brothers Coal Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Africa Commodities Group - South Africa
- Australian Coal Association
- Savvy Resources Ltd - HongKong
- Petron Corporation, Philippines
- Mintek Dendrill Indonesia
- New Zealand Coal & Carbon
- Anglo American - United Kingdom
- The Treasury - Australian Government
- Edison Trading Spa - Italy
- Global Business Power Corporation, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Lanco Infratech Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Vedanta Resources Plc - India
- Australian Commodity Traders Exchange
- Toyota Tsusho Corporation, Japan
- Indogreen Group - Indonesia
- Indika Energy - Indonesia
- Chamber of Mines of South Africa
- Deloitte Consulting - India
- Minerals Council of Australia
- Petrochimia International Co. Ltd.- Taiwan
- Merrill Lynch Commodities Europe
- Renaissance Capital - South Africa
- IEA Clean Coal Centre - UK
- Pendopo Energi Batubara - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Siam City Cement - Thailand
- TeaM Sual Corporation - Philippines
- International Coal Ventures Pvt Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Sical Logistics Limited - India
- Meenaskhi Energy Private Limited - India
- SMC Global Power, Philippines
- Malabar Cements Ltd - India
- Sree Jayajothi Cements Limited - India
- Kaltim Prima Coal - Indonesia
- Makarim & Taira - Indonesia
- European Bulk Services B.V. - Netherlands
- PTC India Limited - India
- Ambuja Cements Ltd - India
- Indian Oil Corporation Limited
- Bhatia International Limited - India
- Karaikal Port Pvt Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Samtan Co., Ltd - South Korea
- Jindal Steel & Power Ltd - India
- Economic Council, Georgia
- PNOC Exploration Corporation - Philippines
- Meralco Power Generation, Philippines
- Bulk Trading Sa - Switzerland
- Georgia Ports Authority, United States
- Central Electricity Authority - India
- Kapuas Tunggal Persada - Indonesia
- Indian Energy Exchange, India
- Carbofer General Trading SA - India
- Global Coal Blending Company Limited - Australia
- Vijayanagar Sugar Pvt Ltd - India
- Essar Steel Hazira Ltd - India
- Electricity Authority, New Zealand
- SMG Consultants - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kumho Petrochemical, South Korea
- Vizag Seaport Private Limited - India
- Bhushan Steel Limited - India
- Singapore Mercantile Exchange
- South Luzon Thermal Energy Corporation
- Gujarat Sidhee Cement - India
- Borneo Indobara - Indonesia
- Therma Luzon, Inc, Philippines
- Intertek Mineral Services - Indonesia
- Barasentosa Lestari - Indonesia
- Uttam Galva Steels Limited - India
- Timah Investasi Mineral - Indoneisa
- Sindya Power Generating Company Private Ltd
- Aditya Birla Group - India
- Star Paper Mills Limited - India
- AsiaOL BioFuels Corp., Philippines
- London Commodity Brokers - England
- Orica Australia Pty. Ltd.
- OPG Power Generation Pvt Ltd - India
- Indo Tambangraya Megah - Indonesia
- Agrawal Coal Company - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kobexindo Tractors - Indoneisa
- Planning Commission, India
- Eastern Coal Council - USA
- Altura Mining Limited, Indonesia
- Ministry of Mines - Canada
- Wood Mackenzie - Singapore
- Salva Resources Pvt Ltd - India
- Bukit Makmur.PT - Indonesia
- Aboitiz Power Corporation - Philippines
- Central Java Power - Indonesia
- Wilmar Investment Holdings
- Bangladesh Power Developement Board
- Maharashtra Electricity Regulatory Commission - India
- Jaiprakash Power Ventures ltd
- Directorate Of Revenue Intelligence - India
- Baramulti Group, Indonesia
- San Jose City I Power Corp, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Standard Chartered Bank - UAE
- CIMB Investment Bank - Malaysia
- Coastal Gujarat Power Limited - India
- Semirara Mining and Power Corporation, Philippines
- Thiess Contractors Indonesia
- Latin American Coal - Colombia
- GMR Energy Limited - India
- Globalindo Alam Lestari - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- The State Trading Corporation of India Ltd
- Iligan Light & Power Inc, Philippines
- Interocean Group of Companies - India
- Krishnapatnam Port Company Ltd. - India
- Cement Manufacturers Association - India
- SN Aboitiz Power Inc, Philippines
- Marubeni Corporation - India
- Tata Chemicals Ltd - India
- GVK Power & Infra Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- McConnell Dowell - Australia
- Holcim Trading Pte Ltd - Singapore
- Global Green Power PLC Corporation, Philippines
- LBH Netherlands Bv - Netherlands
- Madhucon Powers Ltd - India
- Bharathi Cement Corporation - India
- India Bulls Power Limited - India
- Heidelberg Cement - Germany
- Semirara Mining Corp, Philippines
- Orica Mining Services - Indonesia
- Sarangani Energy Corporation, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Siam City Cement PLC, Thailand
- VISA Power Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Cigading International Bulk Terminal - Indonesia
- Oldendorff Carriers - Singapore
- Thai Mozambique Logistica
- Chettinad Cement Corporation Ltd - India
- Directorate General of MIneral and Coal - Indonesia
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