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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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Saturday, 18 March 23
HEDGE TO OFFSET LNG VOLATILITY, TRADERS TOLD - BALTIC EXCHANGE
A shift in imports from Asia to Europe led to significant volatility in liquefied natural gas shipping last year, prompting industry experts to urg ...
Friday, 17 March 23
INDONESIAN COAL PRICE REFERENCE UP AROUND 2.17% IN MARCH 2023
COALspot.com: Indonesian Coal Price Reference up around 2.17% in March 2023.
According to the new HBA regulation No. 41.K/MB.0 ...
Saturday, 11 March 23
MARKET INSIGHT - INTERMODAL
Uncertainty over the recovery of Chinese demand, demand destruction in Europe, as well as weather conditions will pivot the LNG market this summer. ...
Wednesday, 08 March 23
INDONESIAN COAL REFERENCE PRICE FORMULA HAS OFFICIALLY CHANGED
Indonesian Minister of Energy and Mineral Resources has officially changed the guideline for determining the benchmark price for the sale of coal c ...
Thursday, 02 March 23
INDIA'S SEABORNE CRUDE OIL IMPORTS IN 2022 INCREASED BY 11.5% YOY - BANCHERO COSTA
2022 has turned out to be a very positive year for crude oil trade, despite the surging oil prices and risks of economic recession, Banchero Costa ...
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- Gujarat Mineral Development Corp Ltd - India
- Bhatia International Limited - India
- Price Waterhouse Coopers - Russia
- Sakthi Sugars Limited - India
- Port Waratah Coal Services - Australia
- Marubeni Corporation - India
- Tamil Nadu electricity Board
- Edison Trading Spa - Italy
- OPG Power Generation Pvt Ltd - India
- Dalmia Cement Bharat India
- Meenaskhi Energy Private Limited - India
- Star Paper Mills Limited - India
- Sree Jayajothi Cements Limited - India
- Posco Energy - South Korea
- Ambuja Cements Ltd - India
- Ministry of Mines - Canada
- Oldendorff Carriers - Singapore
- Directorate Of Revenue Intelligence - India
- Planning Commission, India
- Power Finance Corporation Ltd., India
- Tata Chemicals Ltd - India
- European Bulk Services B.V. - Netherlands
- Banpu Public Company Limited - Thailand
- Madhucon Powers Ltd - India
- Merrill Lynch Commodities Europe
- Global Green Power PLC Corporation, Philippines
- Kapuas Tunggal Persada - Indonesia
- Attock Cement Pakistan Limited
- Parry Sugars Refinery, India
- Altura Mining Limited, Indonesia
- Borneo Indobara - Indonesia
- Mintek Dendrill Indonesia
- Bukit Baiduri Energy - Indonesia
- GMR Energy Limited - India
- Electricity Authority, New Zealand
- Interocean Group of Companies - India
- Energy Link Ltd, New Zealand
- Parliament of New Zealand
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Metalloyd Limited - United Kingdom
- Maharashtra Electricity Regulatory Commission - India
- The Treasury - Australian Government
- Pendopo Energi Batubara - Indonesia
- Indonesian Coal Mining Association
- Bukit Makmur.PT - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Global Coal Blending Company Limited - Australia
- Uttam Galva Steels Limited - India
- Ministry of Finance - Indonesia
- Gujarat Sidhee Cement - India
- Salva Resources Pvt Ltd - India
- Global Business Power Corporation, Philippines
- Miang Besar Coal Terminal - Indonesia
- VISA Power Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Wilmar Investment Holdings
- Central Electricity Authority - India
- Pipit Mutiara Jaya. PT, Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Aditya Birla Group - India
- Rio Tinto Coal - Australia
- Siam City Cement PLC, Thailand
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Indogreen Group - Indonesia
- Standard Chartered Bank - UAE
- Kaltim Prima Coal - Indonesia
- Bangladesh Power Developement Board
- Samtan Co., Ltd - South Korea
- Jindal Steel & Power Ltd - India
- Timah Investasi Mineral - Indoneisa
- The State Trading Corporation of India Ltd
- Ministry of Transport, Egypt
- Kepco SPC Power Corporation, Philippines
- Latin American Coal - Colombia
- Antam Resourcindo - Indonesia
- Larsen & Toubro Limited - India
- The University of Queensland
- Indian Oil Corporation Limited
- Iligan Light & Power Inc, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Intertek Mineral Services - Indonesia
- Straits Asia Resources Limited - Singapore
- Jorong Barutama Greston.PT - Indonesia
- Barasentosa Lestari - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Globalindo Alam Lestari - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Xindia Steels Limited - India
- Deloitte Consulting - India
- Kalimantan Lumbung Energi - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Coalindo Energy - Indonesia
- Makarim & Taira - Indonesia
- Siam City Cement - Thailand
- Maheswari Brothers Coal Limited - India
- South Luzon Thermal Energy Corporation
- Formosa Plastics Group - Taiwan
- Meralco Power Generation, Philippines
- SMC Global Power, Philippines
- Binh Thuan Hamico - Vietnam
- San Jose City I Power Corp, Philippines
- Cigading International Bulk Terminal - Indonesia
- Jaiprakash Power Ventures ltd
- Manunggal Multi Energi - Indonesia
- ASAPP Information Group - India
- IEA Clean Coal Centre - UK
- Indika Energy - Indonesia
- Bhoruka Overseas - Indonesia
- Vizag Seaport Private Limited - India
- Kumho Petrochemical, South Korea
- ICICI Bank Limited - India
- Essar Steel Hazira Ltd - India
- Eastern Energy - Thailand
- Goldman Sachs - Singapore
- GN Power Mariveles Coal Plant, Philippines
- Videocon Industries ltd - India
- Kideco Jaya Agung - Indonesia
- Sindya Power Generating Company Private Ltd
- TeaM Sual Corporation - Philippines
- SMG Consultants - Indonesia
- Bayan Resources Tbk. - Indonesia
- Leighton Contractors Pty Ltd - Australia
- AsiaOL BioFuels Corp., Philippines
- Cement Manufacturers Association - India
- SN Aboitiz Power Inc, Philippines
- Indo Tambangraya Megah - Indonesia
- Independent Power Producers Association of India
- India Bulls Power Limited - India
- Semirara Mining Corp, Philippines
- Coal and Oil Company - UAE
- Sical Logistics Limited - India
- Heidelberg Cement - Germany
- New Zealand Coal & Carbon
- Mjunction Services Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Mercator Lines Limited - India
- Bhushan Steel Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Billiton Holdings Pty Ltd - Australia
- Lanco Infratech Ltd - India
- Anglo American - United Kingdom
- Simpson Spence & Young - Indonesia
- PNOC Exploration Corporation - Philippines
- Baramulti Group, Indonesia
- LBH Netherlands Bv - Netherlands
- CNBM International Corporation - China
- GVK Power & Infra Limited - India
- International Coal Ventures Pvt Ltd - India
- London Commodity Brokers - England
- Africa Commodities Group - South Africa
- Krishnapatnam Port Company Ltd. - India
- Kartika Selabumi Mining - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Petron Corporation, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Electricity Generating Authority of Thailand
- Renaissance Capital - South Africa
- Romanian Commodities Exchange
- Economic Council, Georgia
- Kohat Cement Company Ltd. - Pakistan
- Minerals Council of Australia
- PowerSource Philippines DevCo
- Medco Energi Mining Internasional
- Sojitz Corporation - Japan
- Therma Luzon, Inc, Philippines
- Kobexindo Tractors - Indoneisa
- Energy Development Corp, Philippines
- Karaikal Port Pvt Ltd - India
- Mercuria Energy - Indonesia
- Commonwealth Bank - Australia
- Australian Coal Association
- Aboitiz Power Corporation - Philippines
- Bharathi Cement Corporation - India
- Singapore Mercantile Exchange
- Thai Mozambique Logistica
- Ceylon Electricity Board - Sri Lanka
- Vedanta Resources Plc - India
- Thiess Contractors Indonesia
- Chamber of Mines of South Africa
- Agrawal Coal Company - India
- Orica Mining Services - Indonesia
- Chettinad Cement Corporation Ltd - India
- White Energy Company Limited
- Georgia Ports Authority, United States
- Malabar Cements Ltd - India
- Toyota Tsusho Corporation, Japan
- Orica Australia Pty. Ltd.
- Bulk Trading Sa - Switzerland
- Eastern Coal Council - USA
- Semirara Mining and Power Corporation, Philippines
- MS Steel International - UAE
- Vijayanagar Sugar Pvt Ltd - India
- Ind-Barath Power Infra Limited - India
- Riau Bara Harum - Indonesia
- GAC Shipping (India) Pvt Ltd
- McConnell Dowell - Australia
- Petrochimia International Co. Ltd.- Taiwan
- Wood Mackenzie - Singapore
- Grasim Industreis Ltd - India
- Central Java Power - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Coastal Gujarat Power Limited - India
- Savvy Resources Ltd - HongKong
- PetroVietnam Power Coal Import and Supply Company
- Trasteel International SA, Italy
- Sarangani Energy Corporation, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Australian Commodity Traders Exchange
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- IHS Mccloskey Coal Group - USA
- Indian Energy Exchange, India
- CIMB Investment Bank - Malaysia
- Alfred C Toepfer International GmbH - Germany
- TNB Fuel Sdn Bhd - Malaysia
- PTC India Limited - India
- Carbofer General Trading SA - India
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