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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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Tuesday, 26 February 13
10TH CLEAN COAL FORUM WILL BE HELD ON JUNE 2013
CDMC Events will be presenting the 10th Clean Coal Forum 2013 on June 13 - 14, 2013 in Beijing,China.
It will make you understand regulatory asp ...
Sunday, 24 February 13
COAL SWAPS INCH UP WEEK - ON - WEEK
COALspot.com - Sub-Bit Indonesia coal swaps (FOB ) for average Q2’ 2013 delivery has gained 0.17 percent and CFR South China coal shipme ...
Sunday, 24 February 13
BDI FELL 1.72 PERCENT BUT FREIGHT MARKET FAIRLY STEADY - VISTAAR
COALspot.com - This freight market has been fairly steady this week but, BDI fell1.72 pct and closed at 740 points.
The cape index also joins BDI ...
Saturday, 23 February 13
IHS MCCLOSKEY 20TH ANNUAL COAL CONFERENCE OF THE AMERICAS
IHS McCloskey 20th Annual Coal Conference of the Americas to be held on 13-14 March 2013 in Cartagena, Colombia
IHS is pleased to invite you to t ...
Thursday, 21 February 13
HANDY : THE PACIFIC MARKET GOT FIRMED UP AS CHINESE CAME BACK FROM HOLIDAYS - FEARNLEYS
Handy
The Atlantic saw more cargoes than last week but rates remained unchanged as lot of ships in the market. The USG-Feast was at USD 18k and Bla ...
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- Gujarat Electricity Regulatory Commission - India
- South Luzon Thermal Energy Corporation
- The Treasury - Australian Government
- SN Aboitiz Power Inc, Philippines
- Parry Sugars Refinery, India
- GAC Shipping (India) Pvt Ltd
- Mjunction Services Limited - India
- Vizag Seaport Private Limited - India
- Bulk Trading Sa - Switzerland
- IHS Mccloskey Coal Group - USA
- Malabar Cements Ltd - India
- Energy Development Corp, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Australian Coal Association
- Simpson Spence & Young - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Savvy Resources Ltd - HongKong
- Oldendorff Carriers - Singapore
- GVK Power & Infra Limited - India
- Essar Steel Hazira Ltd - India
- Trasteel International SA, Italy
- Eastern Energy - Thailand
- Ministry of Mines - Canada
- Sree Jayajothi Cements Limited - India
- Indonesian Coal Mining Association
- Central Java Power - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Orica Australia Pty. Ltd.
- TNB Fuel Sdn Bhd - Malaysia
- Riau Bara Harum - Indonesia
- Cement Manufacturers Association - India
- Antam Resourcindo - Indonesia
- Ministry of Finance - Indonesia
- Semirara Mining Corp, Philippines
- Heidelberg Cement - Germany
- Star Paper Mills Limited - India
- Samtan Co., Ltd - South Korea
- Binh Thuan Hamico - Vietnam
- Cigading International Bulk Terminal - Indonesia
- Electricity Authority, New Zealand
- IEA Clean Coal Centre - UK
- Price Waterhouse Coopers - Russia
- Toyota Tsusho Corporation, Japan
- MS Steel International - UAE
- Siam City Cement - Thailand
- San Jose City I Power Corp, Philippines
- Medco Energi Mining Internasional
- International Coal Ventures Pvt Ltd - India
- Petron Corporation, Philippines
- Sarangani Energy Corporation, Philippines
- Vedanta Resources Plc - India
- TeaM Sual Corporation - Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Metalloyd Limited - United Kingdom
- Offshore Bulk Terminal Pte Ltd, Singapore
- CIMB Investment Bank - Malaysia
- Central Electricity Authority - India
- Kideco Jaya Agung - Indonesia
- India Bulls Power Limited - India
- Mercator Lines Limited - India
- Kartika Selabumi Mining - Indonesia
- Aditya Birla Group - India
- Straits Asia Resources Limited - Singapore
- PNOC Exploration Corporation - Philippines
- CNBM International Corporation - China
- Billiton Holdings Pty Ltd - Australia
- PowerSource Philippines DevCo
- Miang Besar Coal Terminal - Indonesia
- Kobexindo Tractors - Indoneisa
- Salva Resources Pvt Ltd - India
- Carbofer General Trading SA - India
- Semirara Mining and Power Corporation, Philippines
- Indika Energy - Indonesia
- Latin American Coal - Colombia
- Kumho Petrochemical, South Korea
- SMG Consultants - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Maheswari Brothers Coal Limited - India
- Sical Logistics Limited - India
- Intertek Mineral Services - Indonesia
- Grasim Industreis Ltd - India
- Barasentosa Lestari - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Sojitz Corporation - Japan
- Eastern Coal Council - USA
- Iligan Light & Power Inc, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Meenaskhi Energy Private Limited - India
- Indogreen Group - Indonesia
- Australian Commodity Traders Exchange
- Gujarat Sidhee Cement - India
- Edison Trading Spa - Italy
- Interocean Group of Companies - India
- Wilmar Investment Holdings
- Bhatia International Limited - India
- Tamil Nadu electricity Board
- Bharathi Cement Corporation - India
- Georgia Ports Authority, United States
- Krishnapatnam Port Company Ltd. - India
- Bahari Cakrawala Sebuku - Indonesia
- Meralco Power Generation, Philippines
- Madhucon Powers Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Thiess Contractors Indonesia
- GMR Energy Limited - India
- Minerals Council of Australia
- Marubeni Corporation - India
- Vijayanagar Sugar Pvt Ltd - India
- European Bulk Services B.V. - Netherlands
- OPG Power Generation Pvt Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- ICICI Bank Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Electricity Generating Authority of Thailand
- Coalindo Energy - Indonesia
- ASAPP Information Group - India
- Attock Cement Pakistan Limited
- Independent Power Producers Association of India
- VISA Power Limited - India
- Global Green Power PLC Corporation, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Indian Oil Corporation Limited
- Singapore Mercantile Exchange
- Xindia Steels Limited - India
- Baramulti Group, Indonesia
- GN Power Mariveles Coal Plant, Philippines
- The University of Queensland
- Power Finance Corporation Ltd., India
- Jaiprakash Power Ventures ltd
- Bukit Asam (Persero) Tbk - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Sindya Power Generating Company Private Ltd
- Tata Chemicals Ltd - India
- Deloitte Consulting - India
- Energy Link Ltd, New Zealand
- Larsen & Toubro Limited - India
- Kapuas Tunggal Persada - Indonesia
- Mintek Dendrill Indonesia
- Parliament of New Zealand
- Bangladesh Power Developement Board
- Pipit Mutiara Jaya. PT, Indonesia
- Chamber of Mines of South Africa
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bhushan Steel Limited - India
- Kepco SPC Power Corporation, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Holcim Trading Pte Ltd - Singapore
- Kalimantan Lumbung Energi - Indonesia
- Ind-Barath Power Infra Limited - India
- Maharashtra Electricity Regulatory Commission - India
- White Energy Company Limited
- Timah Investasi Mineral - Indoneisa
- Romanian Commodities Exchange
- Orica Mining Services - Indonesia
- LBH Netherlands Bv - Netherlands
- Agrawal Coal Company - India
- Kaltim Prima Coal - Indonesia
- Directorate Of Revenue Intelligence - India
- Altura Mining Limited, Indonesia
- Mercuria Energy - Indonesia
- Manunggal Multi Energi - Indonesia
- Posco Energy - South Korea
- Lanco Infratech Ltd - India
- Borneo Indobara - Indonesia
- Global Coal Blending Company Limited - Australia
- Bhoruka Overseas - Indonesia
- Uttam Galva Steels Limited - India
- Indo Tambangraya Megah - Indonesia
- Dalmia Cement Bharat India
- SMC Global Power, Philippines
- London Commodity Brokers - England
- Leighton Contractors Pty Ltd - Australia
- Aboitiz Power Corporation - Philippines
- Global Business Power Corporation, Philippines
- Siam City Cement PLC, Thailand
- Coastal Gujarat Power Limited - India
- Wood Mackenzie - Singapore
- The State Trading Corporation of India Ltd
- Karaikal Port Pvt Ltd - India
- Bukit Makmur.PT - Indonesia
- Videocon Industries ltd - India
- Standard Chartered Bank - UAE
- Formosa Plastics Group - Taiwan
- Chettinad Cement Corporation Ltd - India
- Anglo American - United Kingdom
- Alfred C Toepfer International GmbH - Germany
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Jindal Steel & Power Ltd - India
- Ambuja Cements Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Therma Luzon, Inc, Philippines
- AsiaOL BioFuels Corp., Philippines
- New Zealand Coal & Carbon
- Commonwealth Bank - Australia
- Sakthi Sugars Limited - India
- Merrill Lynch Commodities Europe
- Africa Commodities Group - South Africa
- Rio Tinto Coal - Australia
- Globalindo Alam Lestari - Indonesia
- Banpu Public Company Limited - Thailand
- Renaissance Capital - South Africa
- Indian Energy Exchange, India
- Coal and Oil Company - UAE
- Thai Mozambique Logistica
- Goldman Sachs - Singapore
- PTC India Limited - India
- Bukit Baiduri Energy - Indonesia
- Pendopo Energi Batubara - Indonesia
- Ministry of Transport, Egypt
- Planning Commission, India
- Bayan Resources Tbk. - Indonesia
- Economic Council, Georgia
- Makarim & Taira - Indonesia
- McConnell Dowell - Australia
- Port Waratah Coal Services - Australia
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