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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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Monday, 11 March 13
SUB-BIT FOB INDONESIA COAL SWAPS FELL 1.41 PERCENT W-W
COALspot.com - Sub-Bit Indonesia coal swaps (FOB ) for average Q2’ 2013 delivery has lost 1.41percent and CFR South China coal shipment ...
Sunday, 10 March 13
INDIA - INDONESIA SUPRAMAX FREIGHT : FIRM TREND
COALspot.com – This week freight market was raised and remained firm in all segments.
The BDI was up by 6.70 pct closed at 843 points, ...
Sunday, 10 March 13
INDONESIA'S FORESTRY DEPARTMENT IS TO INCREASE BORROW-TO-USE PERMITS (IJIN PINJAM PAKAI) FEE SOON
COALspot.com : Indonesia to increase borrows-to-use permit fees by 33.33 percent. The government of Indonesia is planning to increase the state&rsqu ...
Friday, 08 March 13
EKO SANTOSO BUDIANTO APPOINTED AS PRESDIENT DIRECTOR OF BERAU COAL ENERGY
COALspot.com - PT Berau Coal Energy has appointed Eko Santoso Budianto as new president director, replacing Rosan Roeslani. Berau’s extraordin ...
Friday, 08 March 13
INDONESIAN HBA UP FOR FIVE CONSECUTIVE MONTHS
COALspot.com - The Indonesian government has declared bench mark price for coal has moved upwards in March 2013.
The monthly coal reference ...
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- Indian Energy Exchange, India
- PNOC Exploration Corporation - Philippines
- Australian Commodity Traders Exchange
- Asmin Koalindo Tuhup - Indonesia
- CNBM International Corporation - China
- Thiess Contractors Indonesia
- Xindia Steels Limited - India
- Meenaskhi Energy Private Limited - India
- Ministry of Mines - Canada
- Singapore Mercantile Exchange
- GN Power Mariveles Coal Plant, Philippines
- Kumho Petrochemical, South Korea
- Indika Energy - Indonesia
- Chamber of Mines of South Africa
- Banpu Public Company Limited - Thailand
- Intertek Mineral Services - Indonesia
- TeaM Sual Corporation - Philippines
- Semirara Mining and Power Corporation, Philippines
- Malabar Cements Ltd - India
- Bharathi Cement Corporation - India
- SMG Consultants - Indonesia
- Barasentosa Lestari - Indonesia
- Price Waterhouse Coopers - Russia
- Parliament of New Zealand
- Simpson Spence & Young - Indonesia
- Jaiprakash Power Ventures ltd
- CIMB Investment Bank - Malaysia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Directorate Of Revenue Intelligence - India
- Sojitz Corporation - Japan
- Manunggal Multi Energi - Indonesia
- Binh Thuan Hamico - Vietnam
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Latin American Coal - Colombia
- Parry Sugars Refinery, India
- Kalimantan Lumbung Energi - Indonesia
- Deloitte Consulting - India
- Tata Chemicals Ltd - India
- VISA Power Limited - India
- Anglo American - United Kingdom
- Bukit Baiduri Energy - Indonesia
- Bangladesh Power Developement Board
- Central Java Power - Indonesia
- Bukit Makmur.PT - Indonesia
- Attock Cement Pakistan Limited
- Kapuas Tunggal Persada - Indonesia
- Petron Corporation, Philippines
- Karaikal Port Pvt Ltd - India
- The Treasury - Australian Government
- Electricity Generating Authority of Thailand
- IHS Mccloskey Coal Group - USA
- Jorong Barutama Greston.PT - Indonesia
- Meralco Power Generation, Philippines
- Bayan Resources Tbk. - Indonesia
- The State Trading Corporation of India Ltd
- India Bulls Power Limited - India
- Samtan Co., Ltd - South Korea
- Carbofer General Trading SA - India
- Central Electricity Authority - India
- Antam Resourcindo - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Kepco SPC Power Corporation, Philippines
- Globalindo Alam Lestari - Indonesia
- Ministry of Transport, Egypt
- Energy Link Ltd, New Zealand
- Sinarmas Energy and Mining - Indonesia
- Vizag Seaport Private Limited - India
- Romanian Commodities Exchange
- Jindal Steel & Power Ltd - India
- Orica Australia Pty. Ltd.
- San Jose City I Power Corp, Philippines
- Toyota Tsusho Corporation, Japan
- Power Finance Corporation Ltd., India
- GAC Shipping (India) Pvt Ltd
- Mercuria Energy - Indonesia
- Timah Investasi Mineral - Indoneisa
- Dalmia Cement Bharat India
- Coastal Gujarat Power Limited - India
- Commonwealth Bank - Australia
- Ceylon Electricity Board - Sri Lanka
- Heidelberg Cement - Germany
- Sakthi Sugars Limited - India
- Global Business Power Corporation, Philippines
- Alfred C Toepfer International GmbH - Germany
- Agrawal Coal Company - India
- Standard Chartered Bank - UAE
- ASAPP Information Group - India
- Minerals Council of Australia
- Formosa Plastics Group - Taiwan
- South Luzon Thermal Energy Corporation
- Rio Tinto Coal - Australia
- The University of Queensland
- Tamil Nadu electricity Board
- Sarangani Energy Corporation, Philippines
- Energy Development Corp, Philippines
- Star Paper Mills Limited - India
- Billiton Holdings Pty Ltd - Australia
- Petrochimia International Co. Ltd.- Taiwan
- Orica Mining Services - Indonesia
- MS Steel International - UAE
- Pipit Mutiara Jaya. PT, Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- International Coal Ventures Pvt Ltd - India
- Salva Resources Pvt Ltd - India
- Bhoruka Overseas - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Kobexindo Tractors - Indoneisa
- Karbindo Abesyapradhi - Indoneisa
- Coal and Oil Company - UAE
- Eastern Coal Council - USA
- Sical Logistics Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Pendopo Energi Batubara - Indonesia
- Leighton Contractors Pty Ltd - Australia
- London Commodity Brokers - England
- Maheswari Brothers Coal Limited - India
- Borneo Indobara - Indonesia
- Makarim & Taira - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Bhatia International Limited - India
- Coalindo Energy - Indonesia
- Bhushan Steel Limited - India
- Videocon Industries ltd - India
- Kartika Selabumi Mining - Indonesia
- Sree Jayajothi Cements Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Posco Energy - South Korea
- PowerSource Philippines DevCo
- TNB Fuel Sdn Bhd - Malaysia
- Bulk Trading Sa - Switzerland
- Indonesian Coal Mining Association
- Cigading International Bulk Terminal - Indonesia
- Medco Energi Mining Internasional
- Aboitiz Power Corporation - Philippines
- Georgia Ports Authority, United States
- Chettinad Cement Corporation Ltd - India
- Ind-Barath Power Infra Limited - India
- Ministry of Finance - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Thai Mozambique Logistica
- Rashtriya Ispat Nigam Limited - India
- Mercator Lines Limited - India
- Larsen & Toubro Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Maharashtra Electricity Regulatory Commission - India
- McConnell Dowell - Australia
- Siam City Cement PLC, Thailand
- Port Waratah Coal Services - Australia
- Grasim Industreis Ltd - India
- Trasteel International SA, Italy
- Eastern Energy - Thailand
- PTC India Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Africa Commodities Group - South Africa
- Cement Manufacturers Association - India
- LBH Netherlands Bv - Netherlands
- OPG Power Generation Pvt Ltd - India
- Iligan Light & Power Inc, Philippines
- Altura Mining Limited, Indonesia
- Riau Bara Harum - Indonesia
- Oldendorff Carriers - Singapore
- Renaissance Capital - South Africa
- Interocean Group of Companies - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Madhucon Powers Ltd - India
- Goldman Sachs - Singapore
- European Bulk Services B.V. - Netherlands
- Savvy Resources Ltd - HongKong
- Planning Commission, India
- Wilmar Investment Holdings
- SN Aboitiz Power Inc, Philippines
- Mintek Dendrill Indonesia
- Ambuja Cements Ltd - India
- Therma Luzon, Inc, Philippines
- Mjunction Services Limited - India
- GMR Energy Limited - India
- Gujarat Sidhee Cement - India
- Electricity Authority, New Zealand
- Siam City Cement - Thailand
- Indo Tambangraya Megah - Indonesia
- White Energy Company Limited
- Merrill Lynch Commodities Europe
- New Zealand Coal & Carbon
- Global Green Power PLC Corporation, Philippines
- Lanco Infratech Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Economic Council, Georgia
- Holcim Trading Pte Ltd - Singapore
- Wood Mackenzie - Singapore
- Bank of Tokyo Mitsubishi UFJ Ltd
- Gujarat Electricity Regulatory Commission - India
- Edison Trading Spa - Italy
- Australian Coal Association
- Vedanta Resources Plc - India
- Indian Oil Corporation Limited
- Straits Asia Resources Limited - Singapore
- ICICI Bank Limited - India
- Metalloyd Limited - United Kingdom
- IEA Clean Coal Centre - UK
- SMC Global Power, Philippines
- Uttam Galva Steels Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kideco Jaya Agung - Indonesia
- Global Coal Blending Company Limited - Australia
- Essar Steel Hazira Ltd - India
- Indogreen Group - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Kaltim Prima Coal - Indonesia
- Semirara Mining Corp, Philippines
- Sindya Power Generating Company Private Ltd
- Marubeni Corporation - India
- Neyveli Lignite Corporation Ltd, - India
- Aditya Birla Group - India
- Independent Power Producers Association of India
- Baramulti Group, Indonesia
- GVK Power & Infra Limited - India
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