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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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Sunday, 16 April 23
CHINA JUGGLES FOUR MAJOR ECONOMIC CHANGES IN 2023 - WOOD MACKENZIE
Change is afoot in China. Economic growth is slowing, while rising political tensions between China and the US, coupled with global supply chain re ...
Sunday, 16 April 23
CHINA'S MARCH COAL IMPORTS JUMP TO 3-YEAR HIGH - REUTERS
China’s coal imports surged in March to their highest in any month over the past three years as utilities increased purchases on expectations ...
Sunday, 16 April 23
OPEC KEEPS WORLD OIL DEMAND GROWTH OUTLOOK UNCHANGED
The OPEC Reference Basket (ORB) declined in March by $3.43, or 4.2%, m-o-m to average $78.45/b. The ICE Brent first-month contract fell by $4.33, o ...
Sunday, 16 April 23
CHEAPER SPOT LNG PRICES TEMPT SOME ASIAN BUYERS AMID SUPPLY GAINS - REUTERS
Cheaper spot prices for liquefied natural gas (LNG) are luring price-sensitive buyers back in Asia, with China and India recording rising imports i ...
Tuesday, 11 April 23
COAL USE CLIMBS WORLDWIDE DESPITE PROMISES TO SLASH IT - AAP
The burning of coal for electricity, cement, steel and other uses went up in 2022 despite global promises to phase down the fuel that is the bigges ...
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Showing 106 to 110 news of total 6871 |
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- ASAPP Information Group - India
- Videocon Industries ltd - India
- Leighton Contractors Pty Ltd - Australia
- Makarim & Taira - Indonesia
- Deloitte Consulting - India
- Savvy Resources Ltd - HongKong
- Bahari Cakrawala Sebuku - Indonesia
- Renaissance Capital - South Africa
- Orica Australia Pty. Ltd.
- Central Electricity Authority - India
- Eastern Coal Council - USA
- Uttam Galva Steels Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Kohat Cement Company Ltd. - Pakistan
- GVK Power & Infra Limited - India
- Bulk Trading Sa - Switzerland
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- PowerSource Philippines DevCo
- Therma Luzon, Inc, Philippines
- Directorate Of Revenue Intelligence - India
- Ministry of Finance - Indonesia
- Bhushan Steel Limited - India
- Orica Mining Services - Indonesia
- India Bulls Power Limited - India
- SMG Consultants - Indonesia
- Metalloyd Limited - United Kingdom
- Indogreen Group - Indonesia
- Ambuja Cements Ltd - India
- Energy Development Corp, Philippines
- Simpson Spence & Young - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Borneo Indobara - Indonesia
- Sojitz Corporation - Japan
- Goldman Sachs - Singapore
- Australian Commodity Traders Exchange
- Timah Investasi Mineral - Indoneisa
- Directorate General of MIneral and Coal - Indonesia
- Economic Council, Georgia
- Formosa Plastics Group - Taiwan
- Global Green Power PLC Corporation, Philippines
- Coal and Oil Company - UAE
- Carbofer General Trading SA - India
- Tamil Nadu electricity Board
- TeaM Sual Corporation - Philippines
- Meralco Power Generation, Philippines
- International Coal Ventures Pvt Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Meenaskhi Energy Private Limited - India
- Vedanta Resources Plc - India
- Africa Commodities Group - South Africa
- SMC Global Power, Philippines
- Price Waterhouse Coopers - Russia
- Sree Jayajothi Cements Limited - India
- PTC India Limited - India
- Larsen & Toubro Limited - India
- Maheswari Brothers Coal Limited - India
- Aditya Birla Group - India
- Marubeni Corporation - India
- Bukit Makmur.PT - Indonesia
- Cigading International Bulk Terminal - Indonesia
- The State Trading Corporation of India Ltd
- Holcim Trading Pte Ltd - Singapore
- Miang Besar Coal Terminal - Indonesia
- MS Steel International - UAE
- Planning Commission, India
- The University of Queensland
- Sarangani Energy Corporation, Philippines
- Kapuas Tunggal Persada - Indonesia
- VISA Power Limited - India
- Baramulti Group, Indonesia
- Malabar Cements Ltd - India
- Mintek Dendrill Indonesia
- Grasim Industreis Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- GAC Shipping (India) Pvt Ltd
- Electricity Generating Authority of Thailand
- Central Java Power - Indonesia
- PNOC Exploration Corporation - Philippines
- Altura Mining Limited, Indonesia
- Agrawal Coal Company - India
- South Luzon Thermal Energy Corporation
- Indo Tambangraya Megah - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Dalmia Cement Bharat India
- Coalindo Energy - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Kumho Petrochemical, South Korea
- Bukit Baiduri Energy - Indonesia
- Gujarat Electricity Regulatory Commission - India
- London Commodity Brokers - England
- Ministry of Transport, Egypt
- Anglo American - United Kingdom
- McConnell Dowell - Australia
- Wood Mackenzie - Singapore
- New Zealand Coal & Carbon
- Independent Power Producers Association of India
- Siam City Cement - Thailand
- Ministry of Mines - Canada
- Indian Oil Corporation Limited
- Alfred C Toepfer International GmbH - Germany
- Standard Chartered Bank - UAE
- Kepco SPC Power Corporation, Philippines
- OPG Power Generation Pvt Ltd - India
- Mercuria Energy - Indonesia
- European Bulk Services B.V. - Netherlands
- Vijayanagar Sugar Pvt Ltd - India
- Petron Corporation, Philippines
- Mercator Lines Limited - India
- Cement Manufacturers Association - India
- Riau Bara Harum - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Rio Tinto Coal - Australia
- Jaiprakash Power Ventures ltd
- Krishnapatnam Port Company Ltd. - India
- Chamber of Mines of South Africa
- Kobexindo Tractors - Indoneisa
- Kartika Selabumi Mining - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Pendopo Energi Batubara - Indonesia
- LBH Netherlands Bv - Netherlands
- TNB Fuel Sdn Bhd - Malaysia
- Ind-Barath Power Infra Limited - India
- Bhatia International Limited - India
- Binh Thuan Hamico - Vietnam
- Antam Resourcindo - Indonesia
- Australian Coal Association
- GMR Energy Limited - India
- Iligan Light & Power Inc, Philippines
- Globalindo Alam Lestari - Indonesia
- Lanco Infratech Ltd - India
- Siam City Cement PLC, Thailand
- Karaikal Port Pvt Ltd - India
- Banpu Public Company Limited - Thailand
- Heidelberg Cement - Germany
- Electricity Authority, New Zealand
- Kideco Jaya Agung - Indonesia
- Eastern Energy - Thailand
- CNBM International Corporation - China
- San Jose City I Power Corp, Philippines
- Bharathi Cement Corporation - India
- CIMB Investment Bank - Malaysia
- Vizag Seaport Private Limited - India
- Romanian Commodities Exchange
- Attock Cement Pakistan Limited
- Ceylon Electricity Board - Sri Lanka
- Trasteel International SA, Italy
- Kaltim Prima Coal - Indonesia
- Sakthi Sugars Limited - India
- Port Waratah Coal Services - Australia
- Kalimantan Lumbung Energi - Indonesia
- ICICI Bank Limited - India
- Interocean Group of Companies - India
- Asmin Koalindo Tuhup - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- SN Aboitiz Power Inc, Philippines
- Indonesian Coal Mining Association
- Medco Energi Mining Internasional
- Mjunction Services Limited - India
- Tata Chemicals Ltd - India
- Commonwealth Bank - Australia
- Semirara Mining and Power Corporation, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Madhucon Powers Ltd - India
- Samtan Co., Ltd - South Korea
- Indian Energy Exchange, India
- Minerals Council of Australia
- Thai Mozambique Logistica
- Bayan Resources Tbk. - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Oldendorff Carriers - Singapore
- Parry Sugars Refinery, India
- Thiess Contractors Indonesia
- Billiton Holdings Pty Ltd - Australia
- Gujarat Sidhee Cement - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Petrochimia International Co. Ltd.- Taiwan
- Singapore Mercantile Exchange
- Maharashtra Electricity Regulatory Commission - India
- Global Business Power Corporation, Philippines
- IEA Clean Coal Centre - UK
- Toyota Tsusho Corporation, Japan
- Aboitiz Power Corporation - Philippines
- Power Finance Corporation Ltd., India
- Star Paper Mills Limited - India
- Latin American Coal - Colombia
- Bangladesh Power Developement Board
- Energy Link Ltd, New Zealand
- Semirara Mining Corp, Philippines
- Sindya Power Generating Company Private Ltd
- The Treasury - Australian Government
- IHS Mccloskey Coal Group - USA
- Jindal Steel & Power Ltd - India
- Global Coal Blending Company Limited - Australia
- Georgia Ports Authority, United States
- Sical Logistics Limited - India
- AsiaOL BioFuels Corp., Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Edison Trading Spa - Italy
- Xindia Steels Limited - India
- Barasentosa Lestari - Indonesia
- Intertek Mineral Services - Indonesia
- Posco Energy - South Korea
- Parliament of New Zealand
- Chettinad Cement Corporation Ltd - India
- Straits Asia Resources Limited - Singapore
- Essar Steel Hazira Ltd - India
- Indika Energy - Indonesia
- Merrill Lynch Commodities Europe
- Bhoruka Overseas - Indonesia
- Coastal Gujarat Power Limited - India
- White Energy Company Limited
- Manunggal Multi Energi - Indonesia
- Salva Resources Pvt Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Wilmar Investment Holdings
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