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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, 23 March 13
WORLD COAL TRADE FIRST PASSES 1 BILLION TONS IN 2012 - VEREIN DER KOHLENIMPORTEURE E.V
Press Release: Hard coal imports to Germany on the previous year's level in spite of regenerative energies. Imports for power plants at an all-time ...
Thursday, 21 March 13
HANDY : RBCT ROUNDS FIXED AT $ 9000 + 300K BB - FEARNRESEARCH
Handy
The Atlantic market remains firm with cargoes seen to support healthy rates as per last week. The USG-Feast was at USD 25k and Black Sea-Feas ...
Wednesday, 20 March 13
NTPC TO IMPORT SEVEN MILLION TONS COAL FOR FOUR MONTHS
COALspot.com : NTPC Limited (formerly National Thermal Power Corporation) is the largest Indian state-owned electric utilities company has awarded&n ...
Tuesday, 19 March 13
CHINA GAS PRICE REFORMS AND APAC GAS PRICING - FITCH STREET VIEW
Fitch Ratings says pricing reform in the Chinese gas sector is unlikely to materially impact gas distributors' margins, and low gas prices in the U ...
Tuesday, 19 March 13
NEWCASTLE COAL EXPORTS FALL BY 4.27 PERCENT ON WEEK
COALspot.com - Newcastle port in Australia has loaded 2,365,561 MT of thermal and coking coal for week ended 0700 hours 18 March 2013, Newcast ...
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- Karaikal Port Pvt Ltd - India
- LBH Netherlands Bv - Netherlands
- Georgia Ports Authority, United States
- GAC Shipping (India) Pvt Ltd
- Pipit Mutiara Jaya. PT, Indonesia
- Oldendorff Carriers - Singapore
- Carbofer General Trading SA - India
- Goldman Sachs - Singapore
- Indian Energy Exchange, India
- European Bulk Services B.V. - Netherlands
- Jorong Barutama Greston.PT - Indonesia
- Meenaskhi Energy Private Limited - India
- IEA Clean Coal Centre - UK
- Kohat Cement Company Ltd. - Pakistan
- Bhatia International Limited - India
- Billiton Holdings Pty Ltd - Australia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Videocon Industries ltd - India
- Sarangani Energy Corporation, Philippines
- Kaltim Prima Coal - Indonesia
- Xindia Steels Limited - India
- Global Business Power Corporation, Philippines
- Mintek Dendrill Indonesia
- Wood Mackenzie - Singapore
- Bukit Asam (Persero) Tbk - Indonesia
- International Coal Ventures Pvt Ltd - India
- Sree Jayajothi Cements Limited - India
- Bukit Makmur.PT - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Gujarat Sidhee Cement - India
- Renaissance Capital - South Africa
- Larsen & Toubro Limited - India
- Bharathi Cement Corporation - India
- Central Electricity Authority - India
- Baramulti Group, Indonesia
- Sical Logistics Limited - India
- Central Java Power - Indonesia
- Trasteel International SA, Italy
- Cement Manufacturers Association - India
- Asmin Koalindo Tuhup - Indonesia
- TeaM Sual Corporation - Philippines
- Pendopo Energi Batubara - Indonesia
- Eastern Energy - Thailand
- Bukit Baiduri Energy - Indonesia
- Marubeni Corporation - India
- Energy Development Corp, Philippines
- Attock Cement Pakistan Limited
- Iligan Light & Power Inc, Philippines
- The University of Queensland
- Bahari Cakrawala Sebuku - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Commonwealth Bank - Australia
- Mercuria Energy - Indonesia
- Dalmia Cement Bharat India
- Orica Australia Pty. Ltd.
- Maheswari Brothers Coal Limited - India
- Port Waratah Coal Services - Australia
- Kartika Selabumi Mining - Indonesia
- Malabar Cements Ltd - India
- Indian Oil Corporation Limited
- Sinarmas Energy and Mining - Indonesia
- Price Waterhouse Coopers - Russia
- Therma Luzon, Inc, Philippines
- AsiaOL BioFuels Corp., Philippines
- Jaiprakash Power Ventures ltd
- Semirara Mining and Power Corporation, Philippines
- The Treasury - Australian Government
- Bhushan Steel Limited - India
- Altura Mining Limited, Indonesia
- Ministry of Finance - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Ministry of Transport, Egypt
- Ceylon Electricity Board - Sri Lanka
- Electricity Authority, New Zealand
- McConnell Dowell - Australia
- Parry Sugars Refinery, India
- Kalimantan Lumbung Energi - Indonesia
- Economic Council, Georgia
- New Zealand Coal & Carbon
- Rio Tinto Coal - Australia
- Aditya Birla Group - India
- Siam City Cement - Thailand
- Kobexindo Tractors - Indoneisa
- Antam Resourcindo - Indonesia
- IHS Mccloskey Coal Group - USA
- Bayan Resources Tbk. - Indonesia
- Formosa Plastics Group - Taiwan
- Coalindo Energy - Indonesia
- Binh Thuan Hamico - Vietnam
- Timah Investasi Mineral - Indoneisa
- Holcim Trading Pte Ltd - Singapore
- Makarim & Taira - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Borneo Indobara - Indonesia
- Petron Corporation, Philippines
- India Bulls Power Limited - India
- PowerSource Philippines DevCo
- South Luzon Thermal Energy Corporation
- Star Paper Mills Limited - India
- Banpu Public Company Limited - Thailand
- Tata Chemicals Ltd - India
- Heidelberg Cement - Germany
- Minerals Council of Australia
- Kapuas Tunggal Persada - Indonesia
- Vizag Seaport Private Limited - India
- Straits Asia Resources Limited - Singapore
- Sojitz Corporation - Japan
- Ambuja Cements Ltd - India
- Merrill Lynch Commodities Europe
- The State Trading Corporation of India Ltd
- Interocean Group of Companies - India
- Grasim Industreis Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Kepco SPC Power Corporation, Philippines
- GMR Energy Limited - India
- Ind-Barath Power Infra Limited - India
- Energy Link Ltd, New Zealand
- Coastal Gujarat Power Limited - India
- Essar Steel Hazira Ltd - India
- Electricity Generating Authority of Thailand
- Krishnapatnam Port Company Ltd. - India
- Leighton Contractors Pty Ltd - Australia
- Anglo American - United Kingdom
- Samtan Co., Ltd - South Korea
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Globalindo Alam Lestari - Indonesia
- Barasentosa Lestari - Indonesia
- VISA Power Limited - India
- Savvy Resources Ltd - HongKong
- Bangladesh Power Developement Board
- Standard Chartered Bank - UAE
- Riau Bara Harum - Indonesia
- Romanian Commodities Exchange
- SN Aboitiz Power Inc, Philippines
- Alfred C Toepfer International GmbH - Germany
- Aboitiz Power Corporation - Philippines
- SMG Consultants - Indonesia
- Australian Commodity Traders Exchange
- Medco Energi Mining Internasional
- Miang Besar Coal Terminal - Indonesia
- Mercator Lines Limited - India
- CNBM International Corporation - China
- Lanco Infratech Ltd - India
- London Commodity Brokers - England
- Wilmar Investment Holdings
- Karbindo Abesyapradhi - Indoneisa
- PTC India Limited - India
- Coal and Oil Company - UAE
- Ministry of Mines - Canada
- SMC Global Power, Philippines
- Singapore Mercantile Exchange
- Siam City Cement PLC, Thailand
- OPG Power Generation Pvt Ltd - India
- Indo Tambangraya Megah - Indonesia
- Metalloyd Limited - United Kingdom
- PNOC Exploration Corporation - Philippines
- Deloitte Consulting - India
- Kideco Jaya Agung - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Australian Coal Association
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- ASAPP Information Group - India
- Toyota Tsusho Corporation, Japan
- Global Green Power PLC Corporation, Philippines
- Rashtriya Ispat Nigam Limited - India
- Eastern Coal Council - USA
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bulk Trading Sa - Switzerland
- Independent Power Producers Association of India
- Sindya Power Generating Company Private Ltd
- Chettinad Cement Corporation Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Thiess Contractors Indonesia
- Directorate Of Revenue Intelligence - India
- Manunggal Multi Energi - Indonesia
- Intertek Mineral Services - Indonesia
- Meralco Power Generation, Philippines
- MS Steel International - UAE
- GVK Power & Infra Limited - India
- Madhucon Powers Ltd - India
- CIMB Investment Bank - Malaysia
- Africa Commodities Group - South Africa
- San Jose City I Power Corp, Philippines
- Posco Energy - South Korea
- Simpson Spence & Young - Indonesia
- Global Coal Blending Company Limited - Australia
- Orica Mining Services - Indonesia
- Chamber of Mines of South Africa
- Tamil Nadu electricity Board
- Gujarat Electricity Regulatory Commission - India
- Semirara Mining Corp, Philippines
- Mjunction Services Limited - India
- Salva Resources Pvt Ltd - India
- Sakthi Sugars Limited - India
- Kumho Petrochemical, South Korea
- ICICI Bank Limited - India
- White Energy Company Limited
- Jindal Steel & Power Ltd - India
- Indika Energy - Indonesia
- Planning Commission, India
- Edison Trading Spa - Italy
- PetroVietnam Power Coal Import and Supply Company
- Bhoruka Overseas - Indonesia
- Indonesian Coal Mining Association
- GN Power Mariveles Coal Plant, Philippines
- Uttam Galva Steels Limited - India
- Thai Mozambique Logistica
- Maharashtra Electricity Regulatory Commission - India
- Indogreen Group - Indonesia
- Latin American Coal - Colombia
- Power Finance Corporation Ltd., India
- Agrawal Coal Company - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Vedanta Resources Plc - India
- Directorate General of MIneral and Coal - Indonesia
- Parliament of New Zealand
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