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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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Friday, 08 March 13
DRY BULK MARKET ON A RISING TREND - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market has continued its rising pattern set after China opened up again for business, following the Asian New Year Holidays. As a resul ...
Thursday, 07 March 13
PANAMAX : POSITIVE TREND; CAPESIZE : GRADUALLY SLIDE - FEARNLEYS AS
Handy
The Atlantic saw more cargoes than last week and rates ticking upwards. The USG-Feast was at USD 22k and Black sea-feast was at USD 12k. The ...
Tuesday, 05 March 13
NEWCASTLE PORT SHIPPED 20.77 PERCENT MORE COAL W/E 4 MARCH 2013
COALspot.com - Newcastle port in Australia has loaded 2,631,562 MT of thermal and coking coal for a week ended 0700 hours 4 March 2013, Newcas ...
Sunday, 03 March 13
INDONESIAN THERMAL COAL SWAPS; CHINA CONTRACTS FALL W-O-W
COALspot.com - Sub-Bit Indonesia coal swaps (FOB ) for average Q2’ 2013 delivery has lost 0.75 percent and CFR South China coal shipment&nbs ...
Sunday, 03 March 13
FREIGHT MARKET FROM INDONESIA EXPECTED TO BE FIRM - VISTAAR
COALspot.com – The freight market has been fairly firm this week except for cape size index.
The BDI was up by 4.64 points closing at 776 p ...
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- Indonesian Coal Mining Association
- Energy Link Ltd, New Zealand
- SMG Consultants - Indonesia
- Posco Energy - South Korea
- Petron Corporation, Philippines
- Georgia Ports Authority, United States
- Sree Jayajothi Cements Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Medco Energi Mining Internasional
- ASAPP Information Group - India
- South Luzon Thermal Energy Corporation
- Orica Mining Services - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Bulk Trading Sa - Switzerland
- Sojitz Corporation - Japan
- Ministry of Mines - Canada
- Directorate Of Revenue Intelligence - India
- Merrill Lynch Commodities Europe
- AsiaOL BioFuels Corp., Philippines
- GVK Power & Infra Limited - India
- Interocean Group of Companies - India
- Siam City Cement PLC, Thailand
- Eastern Energy - Thailand
- Baramulti Group, Indonesia
- Vedanta Resources Plc - India
- Wood Mackenzie - Singapore
- Billiton Holdings Pty Ltd - Australia
- Global Business Power Corporation, Philippines
- Kapuas Tunggal Persada - Indonesia
- Riau Bara Harum - Indonesia
- Wilmar Investment Holdings
- SN Aboitiz Power Inc, Philippines
- Siam City Cement - Thailand
- Parry Sugars Refinery, India
- Tamil Nadu electricity Board
- Formosa Plastics Group - Taiwan
- Mjunction Services Limited - India
- Bangladesh Power Developement Board
- Metalloyd Limited - United Kingdom
- Edison Trading Spa - Italy
- Aditya Birla Group - India
- Global Green Power PLC Corporation, Philippines
- Samtan Co., Ltd - South Korea
- The Treasury - Australian Government
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Parliament of New Zealand
- Indogreen Group - Indonesia
- Ind-Barath Power Infra Limited - India
- Electricity Generating Authority of Thailand
- Gujarat Mineral Development Corp Ltd - India
- Mintek Dendrill Indonesia
- Antam Resourcindo - Indonesia
- CNBM International Corporation - China
- Ceylon Electricity Board - Sri Lanka
- Coalindo Energy - Indonesia
- Renaissance Capital - South Africa
- Salva Resources Pvt Ltd - India
- Carbofer General Trading SA - India
- Asmin Koalindo Tuhup - Indonesia
- European Bulk Services B.V. - Netherlands
- Central Java Power - Indonesia
- Makarim & Taira - Indonesia
- Coastal Gujarat Power Limited - India
- Meenaskhi Energy Private Limited - India
- GAC Shipping (India) Pvt Ltd
- Kalimantan Lumbung Energi - Indonesia
- Heidelberg Cement - Germany
- Offshore Bulk Terminal Pte Ltd, Singapore
- Goldman Sachs - Singapore
- Simpson Spence & Young - Indonesia
- Altura Mining Limited, Indonesia
- Indian Energy Exchange, India
- Standard Chartered Bank - UAE
- Orica Australia Pty. Ltd.
- Kepco SPC Power Corporation, Philippines
- Globalindo Alam Lestari - Indonesia
- Attock Cement Pakistan Limited
- Bukit Baiduri Energy - Indonesia
- Electricity Authority, New Zealand
- Videocon Industries ltd - India
- Chamber of Mines of South Africa
- Commonwealth Bank - Australia
- Jindal Steel & Power Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Uttam Galva Steels Limited - India
- London Commodity Brokers - England
- Karaikal Port Pvt Ltd - India
- Coal and Oil Company - UAE
- Savvy Resources Ltd - HongKong
- Krishnapatnam Port Company Ltd. - India
- PowerSource Philippines DevCo
- Essar Steel Hazira Ltd - India
- Anglo American - United Kingdom
- Economic Council, Georgia
- Kaltim Prima Coal - Indonesia
- Jaiprakash Power Ventures ltd
- Straits Asia Resources Limited - Singapore
- Ambuja Cements Ltd - India
- Aboitiz Power Corporation - Philippines
- San Jose City I Power Corp, Philippines
- Grasim Industreis Ltd - India
- Marubeni Corporation - India
- Bhushan Steel Limited - India
- Sinarmas Energy and Mining - Indonesia
- Eastern Coal Council - USA
- Tata Chemicals Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Kobexindo Tractors - Indoneisa
- Africa Commodities Group - South Africa
- CIMB Investment Bank - Malaysia
- Cigading International Bulk Terminal - Indonesia
- Madhucon Powers Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Thai Mozambique Logistica
- Star Paper Mills Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Energy Development Corp, Philippines
- Alfred C Toepfer International GmbH - Germany
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Indo Tambangraya Megah - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- India Bulls Power Limited - India
- VISA Power Limited - India
- Latin American Coal - Colombia
- Mercator Lines Limited - India
- Mercuria Energy - Indonesia
- PNOC Exploration Corporation - Philippines
- Sical Logistics Limited - India
- Independent Power Producers Association of India
- LBH Netherlands Bv - Netherlands
- Borneo Indobara - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Central Electricity Authority - India
- Vizag Seaport Private Limited - India
- Rashtriya Ispat Nigam Limited - India
- Semirara Mining and Power Corporation, Philippines
- Ministry of Transport, Egypt
- Bukit Asam (Persero) Tbk - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Oldendorff Carriers - Singapore
- Maheswari Brothers Coal Limited - India
- Bukit Makmur.PT - Indonesia
- Pendopo Energi Batubara - Indonesia
- Kumho Petrochemical, South Korea
- McConnell Dowell - Australia
- Karbindo Abesyapradhi - Indoneisa
- Manunggal Multi Energi - Indonesia
- OPG Power Generation Pvt Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Cement Manufacturers Association - India
- Toyota Tsusho Corporation, Japan
- Chettinad Cement Corporation Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- SMC Global Power, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Sarangani Energy Corporation, Philippines
- Sindya Power Generating Company Private Ltd
- Barasentosa Lestari - Indonesia
- Malabar Cements Ltd - India
- Dalmia Cement Bharat India
- Price Waterhouse Coopers - Russia
- Bharathi Cement Corporation - India
- Minerals Council of Australia
- Romanian Commodities Exchange
- Deloitte Consulting - India
- Ministry of Finance - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Kohat Cement Company Ltd. - Pakistan
- ICICI Bank Limited - India
- Binh Thuan Hamico - Vietnam
- Bhoruka Overseas - Indonesia
- IEA Clean Coal Centre - UK
- Agrawal Coal Company - India
- Timah Investasi Mineral - Indoneisa
- Iligan Light & Power Inc, Philippines
- Semirara Mining Corp, Philippines
- Bhatia International Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Indian Oil Corporation Limited
- White Energy Company Limited
- Gujarat Sidhee Cement - India
- Miang Besar Coal Terminal - Indonesia
- Lanco Infratech Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Sakthi Sugars Limited - India
- Australian Coal Association
- Meralco Power Generation, Philippines
- Power Finance Corporation Ltd., India
- Banpu Public Company Limited - Thailand
- Kideco Jaya Agung - Indonesia
- IHS Mccloskey Coal Group - USA
- Intertek Mineral Services - Indonesia
- International Coal Ventures Pvt Ltd - India
- Bayan Resources Tbk. - Indonesia
- Kartika Selabumi Mining - Indonesia
- Indika Energy - Indonesia
- Port Waratah Coal Services - Australia
- MS Steel International - UAE
- Xindia Steels Limited - India
- Rio Tinto Coal - Australia
- GMR Energy Limited - India
- Trasteel International SA, Italy
- Directorate General of MIneral and Coal - Indonesia
- PTC India Limited - India
- New Zealand Coal & Carbon
- Australian Commodity Traders Exchange
- Global Coal Blending Company Limited - Australia
- Singapore Mercantile Exchange
- Planning Commission, India
- Thiess Contractors Indonesia
- Therma Luzon, Inc, Philippines
- The State Trading Corporation of India Ltd
- TeaM Sual Corporation - Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Larsen & Toubro Limited - India
- The University of Queensland
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