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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, 12 February 13
GOVERNMENT DECLARED INDONESIAN THERMAL COAL PRICE INCHES UP IN FEBRUARY
COALspot.com - The Indonesian government has declared bench mark price for coal has moved upwards in February 2013.
The monthly coal refere ...
Monday, 11 February 13
NEWCASTLE PORT SHIPPED 23.01 PERCENT MORE COAL W-O-W
COALspot.com - Newcastle port in Australia has loaded 2,967,761 MT of thermal and coking coal for week ended 0700 hours 11 February 2013, Newc ...
Sunday, 10 February 13
INDONESIA SUB-BIT SWAPS: "UP" - CFR SOUTH CHINA SWAPS: "DOWN"
COALspot.com - Sub-Bit Indonesia coal swaps (FOB ) for average Q2’ 2013 delivery has gained 0.72 percent W-O-W and CFR South China coal shipme ...
Sunday, 10 February 13
DRY BULK OVERSUPPLY OF TONNAGE SEEN WANING IN THE COMING MONTHS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
It seems that the tide could be shifting in the dry bulk market, in terms of tonnage oversupply, according to the latest data figures. This could ex ...
Sunday, 10 February 13
HIGHER BUNKER PRICE PUSHES SEA FREIGHTS FIRM - REDDY
COALspot.com - The freight market was soft and all at same levels with Chinese year holidays next week.
The BDI was slightly down by 0.27 pct ad ...
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- Thai Mozambique Logistica
- Chamber of Mines of South Africa
- Vizag Seaport Private Limited - India
- New Zealand Coal & Carbon
- Savvy Resources Ltd - HongKong
- Uttam Galva Steels Limited - India
- Edison Trading Spa - Italy
- Borneo Indobara - Indonesia
- Australian Commodity Traders Exchange
- Petron Corporation, Philippines
- SN Aboitiz Power Inc, Philippines
- Ind-Barath Power Infra Limited - India
- Minerals Council of Australia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Maharashtra Electricity Regulatory Commission - India
- Metalloyd Limited - United Kingdom
- Grasim Industreis Ltd - India
- Merrill Lynch Commodities Europe
- Formosa Plastics Group - Taiwan
- Barasentosa Lestari - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Interocean Group of Companies - India
- Bangladesh Power Developement Board
- The Treasury - Australian Government
- Makarim & Taira - Indonesia
- Globalindo Alam Lestari - Indonesia
- San Jose City I Power Corp, Philippines
- LBH Netherlands Bv - Netherlands
- Antam Resourcindo - Indonesia
- Larsen & Toubro Limited - India
- Siam City Cement - Thailand
- Maheswari Brothers Coal Limited - India
- Indogreen Group - Indonesia
- Malabar Cements Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Africa Commodities Group - South Africa
- Kobexindo Tractors - Indoneisa
- PowerSource Philippines DevCo
- Mercuria Energy - Indonesia
- MS Steel International - UAE
- Neyveli Lignite Corporation Ltd, - India
- Alfred C Toepfer International GmbH - Germany
- Kohat Cement Company Ltd. - Pakistan
- Ministry of Transport, Egypt
- Jaiprakash Power Ventures ltd
- Samtan Co., Ltd - South Korea
- Kartika Selabumi Mining - Indonesia
- Coal and Oil Company - UAE
- Indonesian Coal Mining Association
- Bhushan Steel Limited - India
- Indian Oil Corporation Limited
- Marubeni Corporation - India
- Eastern Energy - Thailand
- Leighton Contractors Pty Ltd - Australia
- Rio Tinto Coal - Australia
- Electricity Authority, New Zealand
- SMC Global Power, Philippines
- Ambuja Cements Ltd - India
- Medco Energi Mining Internasional
- Romanian Commodities Exchange
- Independent Power Producers Association of India
- McConnell Dowell - Australia
- Georgia Ports Authority, United States
- Karbindo Abesyapradhi - Indoneisa
- Deloitte Consulting - India
- Petrochimia International Co. Ltd.- Taiwan
- Commonwealth Bank - Australia
- Power Finance Corporation Ltd., India
- Billiton Holdings Pty Ltd - Australia
- IEA Clean Coal Centre - UK
- Madhucon Powers Ltd - India
- Vedanta Resources Plc - India
- Agrawal Coal Company - India
- Port Waratah Coal Services - Australia
- Manunggal Multi Energi - Indonesia
- GAC Shipping (India) Pvt Ltd
- AsiaOL BioFuels Corp., Philippines
- The State Trading Corporation of India Ltd
- Economic Council, Georgia
- Parry Sugars Refinery, India
- Bukit Makmur.PT - Indonesia
- Oldendorff Carriers - Singapore
- Tata Chemicals Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Global Green Power PLC Corporation, Philippines
- TeaM Sual Corporation - Philippines
- Central Electricity Authority - India
- Bhatia International Limited - India
- GVK Power & Infra Limited - India
- Kideco Jaya Agung - Indonesia
- Directorate Of Revenue Intelligence - India
- GMR Energy Limited - India
- European Bulk Services B.V. - Netherlands
- Ministry of Mines - Canada
- Mintek Dendrill Indonesia
- Orica Australia Pty. Ltd.
- Gujarat Electricity Regulatory Commission - India
- Iligan Light & Power Inc, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Aditya Birla Group - India
- Sarangani Energy Corporation, Philippines
- Orica Mining Services - Indonesia
- Lanco Infratech Ltd - India
- Bhoruka Overseas - Indonesia
- Sakthi Sugars Limited - India
- Kepco SPC Power Corporation, Philippines
- Therma Luzon, Inc, Philippines
- Renaissance Capital - South Africa
- Semirara Mining Corp, Philippines
- ICICI Bank Limited - India
- India Bulls Power Limited - India
- Pendopo Energi Batubara - Indonesia
- The University of Queensland
- Bahari Cakrawala Sebuku - Indonesia
- Star Paper Mills Limited - India
- Banpu Public Company Limited - Thailand
- Australian Coal Association
- Videocon Industries ltd - India
- Kaltim Prima Coal - Indonesia
- Mercator Lines Limited - India
- PNOC Exploration Corporation - Philippines
- Gujarat Mineral Development Corp Ltd - India
- Global Business Power Corporation, Philippines
- Singapore Mercantile Exchange
- Mjunction Services Limited - India
- SMG Consultants - Indonesia
- Tamil Nadu electricity Board
- Ceylon Electricity Board - Sri Lanka
- Cement Manufacturers Association - India
- Thiess Contractors Indonesia
- Sical Logistics Limited - India
- Trasteel International SA, Italy
- Chettinad Cement Corporation Ltd - India
- Gujarat Sidhee Cement - India
- Standard Chartered Bank - UAE
- Siam City Cement PLC, Thailand
- Eastern Coal Council - USA
- Jindal Steel & Power Ltd - India
- Coalindo Energy - Indonesia
- Carbofer General Trading SA - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Simpson Spence & Young - Indonesia
- Global Coal Blending Company Limited - Australia
- London Commodity Brokers - England
- Sinarmas Energy and Mining - Indonesia
- CNBM International Corporation - China
- Latin American Coal - Colombia
- Karaikal Port Pvt Ltd - India
- CIMB Investment Bank - Malaysia
- Holcim Trading Pte Ltd - Singapore
- Meenaskhi Energy Private Limited - India
- VISA Power Limited - India
- Semirara Mining and Power Corporation, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Baramulti Group, Indonesia
- Indo Tambangraya Megah - Indonesia
- Straits Asia Resources Limited - Singapore
- Bayan Resources Tbk. - Indonesia
- Wood Mackenzie - Singapore
- Heidelberg Cement - Germany
- Planning Commission, India
- Electricity Generating Authority of Thailand
- Directorate General of MIneral and Coal - Indonesia
- Anglo American - United Kingdom
- Altura Mining Limited, Indonesia
- PTC India Limited - India
- South Luzon Thermal Energy Corporation
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Essar Steel Hazira Ltd - India
- Meralco Power Generation, Philippines
- ASAPP Information Group - India
- International Coal Ventures Pvt Ltd - India
- Indika Energy - Indonesia
- Salva Resources Pvt Ltd - India
- Kumho Petrochemical, South Korea
- Bharathi Cement Corporation - India
- Ministry of Finance - Indonesia
- Sojitz Corporation - Japan
- Miang Besar Coal Terminal - Indonesia
- Attock Cement Pakistan Limited
- Wilmar Investment Holdings
- Sree Jayajothi Cements Limited - India
- PetroVietnam Power Coal Import and Supply Company
- IHS Mccloskey Coal Group - USA
- Timah Investasi Mineral - Indoneisa
- Pipit Mutiara Jaya. PT, Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Bulk Trading Sa - Switzerland
- Central Java Power - Indonesia
- Energy Link Ltd, New Zealand
- OPG Power Generation Pvt Ltd - India
- Indian Energy Exchange, India
- Cigading International Bulk Terminal - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Goldman Sachs - Singapore
- Energy Development Corp, Philippines
- Aboitiz Power Corporation - Philippines
- Parliament of New Zealand
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Posco Energy - South Korea
- Dalmia Cement Bharat India
- Riau Bara Harum - Indonesia
- White Energy Company Limited
- Intertek Mineral Services - Indonesia
- Toyota Tsusho Corporation, Japan
- Bukit Baiduri Energy - Indonesia
- Price Waterhouse Coopers - Russia
- Bukit Asam (Persero) Tbk - Indonesia
- Coastal Gujarat Power Limited - India
- Xindia Steels Limited - India
- Sindya Power Generating Company Private Ltd
- Rashtriya Ispat Nigam Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Binh Thuan Hamico - Vietnam
- GN Power Mariveles Coal Plant, Philippines
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