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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, 31 March 13
COAL FREIGHTS ARE IN FLAT TO WEAK TREND - VISTAAR
COALspot.com - This freight market after several weeks of firming up seemed to lose steam and this week all the indices were down except for handy s ...
Friday, 29 March 13
SUB-BIT INDONESIA COAL SWAPS: UP 0.55 % WOW; CFR SOUTH CHINA COAL CONTRACT: UP 0.23 % WOW
COALspot.com - Sub-Bit Indonesia coal swaps (FOB ) for average Q2’ 2013 delivery has gained 0.55 percent and CFR South China coal shipment&nbs ...
Thursday, 28 March 13
SHIP OWNERS KEEN ON ACQUIRING SECOND HAND TONNAGE, AS WELL AS NEW BUILDINGS IN CONVENTIONAL SEGMENTS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
The recent rally of the Baltic Dry Index (BDI), coupled with renewed optimism, at least in some parts of the wet market, have prompted many ship own ...
Wednesday, 27 March 13
PTBA HAS CONCLUDED US$ 16.14 BILLION WORTH OF COAL SALES AND PURCHASE AGREEMENT WITH PLN
COALspot.com - PT. Bukit Asam, a 32 years old Indonesian state owned coal miner has signed a coal sales and purchase agreement with PT PLN, (a state ...
Wednesday, 27 March 13
SHIPPING CONFIDENCE REACHES HIGHEST LEVEL FOR TWO YEARS - MOORE STEPHENS
Overall confidence levels in the shipping industry recovered to their highest level for two years in the three months ended February 2013, according ...
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- Eastern Energy - Thailand
- Kaltim Prima Coal - Indonesia
- Indogreen Group - Indonesia
- Heidelberg Cement - Germany
- Savvy Resources Ltd - HongKong
- Tata Chemicals Ltd - India
- Vedanta Resources Plc - India
- Posco Energy - South Korea
- Parliament of New Zealand
- Coalindo Energy - Indonesia
- Iligan Light & Power Inc, Philippines
- PTC India Limited - India
- Georgia Ports Authority, United States
- Ceylon Electricity Board - Sri Lanka
- Holcim Trading Pte Ltd - Singapore
- Attock Cement Pakistan Limited
- Banpu Public Company Limited - Thailand
- Port Waratah Coal Services - Australia
- Global Business Power Corporation, Philippines
- Energy Link Ltd, New Zealand
- Bank of Tokyo Mitsubishi UFJ Ltd
- Borneo Indobara - Indonesia
- Indo Tambangraya Megah - Indonesia
- Electricity Generating Authority of Thailand
- Africa Commodities Group - South Africa
- Sree Jayajothi Cements Limited - India
- Essar Steel Hazira Ltd - India
- Renaissance Capital - South Africa
- Sical Logistics Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Bukit Makmur.PT - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Antam Resourcindo - Indonesia
- Intertek Mineral Services - Indonesia
- OPG Power Generation Pvt Ltd - India
- Economic Council, Georgia
- Carbofer General Trading SA - India
- Toyota Tsusho Corporation, Japan
- Bahari Cakrawala Sebuku - Indonesia
- Edison Trading Spa - Italy
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Mjunction Services Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Kartika Selabumi Mining - Indonesia
- Globalindo Alam Lestari - Indonesia
- SN Aboitiz Power Inc, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Siam City Cement - Thailand
- Maharashtra Electricity Regulatory Commission - India
- Lanco Infratech Ltd - India
- Romanian Commodities Exchange
- Sarangani Energy Corporation, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Jaiprakash Power Ventures ltd
- Sindya Power Generating Company Private Ltd
- Karbindo Abesyapradhi - Indoneisa
- Meralco Power Generation, Philippines
- Bharathi Cement Corporation - India
- Medco Energi Mining Internasional
- White Energy Company Limited
- Mercuria Energy - Indonesia
- London Commodity Brokers - England
- Alfred C Toepfer International GmbH - Germany
- Electricity Authority, New Zealand
- Thai Mozambique Logistica
- Australian Commodity Traders Exchange
- Manunggal Multi Energi - Indonesia
- Indian Energy Exchange, India
- Wilmar Investment Holdings
- Independent Power Producers Association of India
- Kobexindo Tractors - Indoneisa
- Semirara Mining Corp, Philippines
- The Treasury - Australian Government
- Binh Thuan Hamico - Vietnam
- Karaikal Port Pvt Ltd - India
- Indian Oil Corporation Limited
- San Jose City I Power Corp, Philippines
- Cigading International Bulk Terminal - Indonesia
- SMG Consultants - Indonesia
- PowerSource Philippines DevCo
- Samtan Co., Ltd - South Korea
- Coastal Gujarat Power Limited - India
- Aboitiz Power Corporation - Philippines
- Cement Manufacturers Association - India
- Global Coal Blending Company Limited - Australia
- CIMB Investment Bank - Malaysia
- Oldendorff Carriers - Singapore
- Xindia Steels Limited - India
- ICICI Bank Limited - India
- Directorate Of Revenue Intelligence - India
- IHS Mccloskey Coal Group - USA
- Sakthi Sugars Limited - India
- Videocon Industries ltd - India
- Jindal Steel & Power Ltd - India
- Commonwealth Bank - Australia
- ASAPP Information Group - India
- Siam City Cement PLC, Thailand
- Gujarat Electricity Regulatory Commission - India
- Tamil Nadu electricity Board
- Planning Commission, India
- Pendopo Energi Batubara - Indonesia
- Ministry of Finance - Indonesia
- Bukit Baiduri Energy - Indonesia
- Standard Chartered Bank - UAE
- Bukit Asam (Persero) Tbk - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Kapuas Tunggal Persada - Indonesia
- Baramulti Group, Indonesia
- GAC Shipping (India) Pvt Ltd
- Kepco SPC Power Corporation, Philippines
- Coal and Oil Company - UAE
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Larsen & Toubro Limited - India
- Formosa Plastics Group - Taiwan
- Krishnapatnam Port Company Ltd. - India
- Merrill Lynch Commodities Europe
- McConnell Dowell - Australia
- TeaM Sual Corporation - Philippines
- Marubeni Corporation - India
- Petron Corporation, Philippines
- Leighton Contractors Pty Ltd - Australia
- Madhucon Powers Ltd - India
- Goldman Sachs - Singapore
- Gujarat Sidhee Cement - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Therma Luzon, Inc, Philippines
- Aditya Birla Group - India
- Star Paper Mills Limited - India
- Mercator Lines Limited - India
- Eastern Coal Council - USA
- GVK Power & Infra Limited - India
- Timah Investasi Mineral - Indoneisa
- IEA Clean Coal Centre - UK
- Vijayanagar Sugar Pvt Ltd - India
- Thiess Contractors Indonesia
- International Coal Ventures Pvt Ltd - India
- Straits Asia Resources Limited - Singapore
- Trasteel International SA, Italy
- Ministry of Transport, Egypt
- Riau Bara Harum - Indonesia
- Global Green Power PLC Corporation, Philippines
- Dalmia Cement Bharat India
- MS Steel International - UAE
- Ministry of Mines - Canada
- GMR Energy Limited - India
- Minerals Council of Australia
- Power Finance Corporation Ltd., India
- Grasim Industreis Ltd - India
- Vizag Seaport Private Limited - India
- Sinarmas Energy and Mining - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Orica Australia Pty. Ltd.
- The University of Queensland
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Anglo American - United Kingdom
- Billiton Holdings Pty Ltd - Australia
- Ambuja Cements Ltd - India
- Bhushan Steel Limited - India
- Parry Sugars Refinery, India
- Gujarat Mineral Development Corp Ltd - India
- New Zealand Coal & Carbon
- South Luzon Thermal Energy Corporation
- Central Electricity Authority - India
- Miang Besar Coal Terminal - Indonesia
- Kumho Petrochemical, South Korea
- Indika Energy - Indonesia
- Chettinad Cement Corporation Ltd - India
- European Bulk Services B.V. - Netherlands
- Meenaskhi Energy Private Limited - India
- Altura Mining Limited, Indonesia
- Singapore Mercantile Exchange
- LBH Netherlands Bv - Netherlands
- Agrawal Coal Company - India
- Maheswari Brothers Coal Limited - India
- Ind-Barath Power Infra Limited - India
- Deloitte Consulting - India
- Petrochimia International Co. Ltd.- Taiwan
- Semirara Mining and Power Corporation, Philippines
- The State Trading Corporation of India Ltd
- GN Power Mariveles Coal Plant, Philippines
- Indonesian Coal Mining Association
- Barasentosa Lestari - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- PNOC Exploration Corporation - Philippines
- SMC Global Power, Philippines
- Australian Coal Association
- Chamber of Mines of South Africa
- Jorong Barutama Greston.PT - Indonesia
- Price Waterhouse Coopers - Russia
- Bangladesh Power Developement Board
- Salva Resources Pvt Ltd - India
- Interocean Group of Companies - India
- Rio Tinto Coal - Australia
- Makarim & Taira - Indonesia
- Kideco Jaya Agung - Indonesia
- Orica Mining Services - Indonesia
- Wood Mackenzie - Singapore
- Mintek Dendrill Indonesia
- Sojitz Corporation - Japan
- Bhoruka Overseas - Indonesia
- Uttam Galva Steels Limited - India
- Metalloyd Limited - United Kingdom
- Energy Development Corp, Philippines
- Bulk Trading Sa - Switzerland
- AsiaOL BioFuels Corp., Philippines
- India Bulls Power Limited - India
- Bhatia International Limited - India
- Central Java Power - Indonesia
- Simpson Spence & Young - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Pipit Mutiara Jaya. PT, Indonesia
- Malabar Cements Ltd - India
- VISA Power Limited - India
- PetroVietnam Power Coal Import and Supply Company
- CNBM International Corporation - China
- Latin American Coal - Colombia
- Bayan Resources Tbk. - Indonesia
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