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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, 05 February 13
NEWCASTLE PORT COAL SHIPMENTS DROPPED BY 10.77 PERCENT W-O-W
COALspot.com - Newcastle port in Australia has loaded 2,412,497 MT of thermal and coking coal for week ended 0700 hours 4 February 2013, Newca ...
Tuesday, 05 February 13
CHALLENGER DEEP RESOURCES CORP HAS ENTERED INTO AN EXCLUSIVE MINING AND MARKETING AGREEMENT WITH KEM
COALspot.com - Challenger Deep Resources Corp., through its wholly owned subsidiary, PT Bestindo Energy, has entered into an Exclusivity Agreement r ...
Saturday, 02 February 13
ADARO TO INTRODUCE A NEW BRAND OF ENVIROCOAL, E4700, IN 2013
COALspot.com - Adaro Energy, an Indonesian and leading coal producer in country has achieved a record coal production during 4Q12 of 13.31 mil ...
Saturday, 02 February 13
FREIGHT MARKET MAY REBOUND AFTER CHINESE NEW YEAR - VISTAAR
COALspot.com - The freight market was soft and all the indices were down by around 5-7 pct this week.
The BDI was down 6.01 pct closing at 750 po ...
Friday, 01 February 13
ORPHEUS SELLS B26 COAL PROJECTS FOR US$ 2 MILLION TO FOCUS ON SOUTH KALIMANTAN
COALspot.com - Orpheus Energy Limited (ASX: OEG) has announced that it has sold its 51 percent equity stake in the East Kalimantan coal projects, Bl ...
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- Deloitte Consulting - India
- Siam City Cement - Thailand
- Bulk Trading Sa - Switzerland
- Globalindo Alam Lestari - Indonesia
- Energy Link Ltd, New Zealand
- Asmin Koalindo Tuhup - Indonesia
- Indonesian Coal Mining Association
- Kalimantan Lumbung Energi - Indonesia
- Grasim Industreis Ltd - India
- New Zealand Coal & Carbon
- TeaM Sual Corporation - Philippines
- Semirara Mining and Power Corporation, Philippines
- Eastern Energy - Thailand
- Thai Mozambique Logistica
- GMR Energy Limited - India
- Indian Oil Corporation Limited
- Karbindo Abesyapradhi - Indoneisa
- Port Waratah Coal Services - Australia
- Gujarat Sidhee Cement - India
- Posco Energy - South Korea
- Power Finance Corporation Ltd., India
- Ind-Barath Power Infra Limited - India
- Bukit Baiduri Energy - Indonesia
- Meralco Power Generation, Philippines
- Therma Luzon, Inc, Philippines
- Georgia Ports Authority, United States
- Sical Logistics Limited - India
- Kepco SPC Power Corporation, Philippines
- Altura Mining Limited, Indonesia
- Antam Resourcindo - Indonesia
- Orica Australia Pty. Ltd.
- Bayan Resources Tbk. - Indonesia
- Meenaskhi Energy Private Limited - India
- Independent Power Producers Association of India
- Metalloyd Limited - United Kingdom
- Trasteel International SA, Italy
- Central Java Power - Indonesia
- Siam City Cement PLC, Thailand
- SMG Consultants - Indonesia
- Coalindo Energy - Indonesia
- GVK Power & Infra Limited - India
- Goldman Sachs - Singapore
- Africa Commodities Group - South Africa
- Wood Mackenzie - Singapore
- Karaikal Port Pvt Ltd - India
- Lanco Infratech Ltd - India
- CNBM International Corporation - China
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Tamil Nadu electricity Board
- Aditya Birla Group - India
- Heidelberg Cement - Germany
- Anglo American - United Kingdom
- Riau Bara Harum - Indonesia
- Indogreen Group - Indonesia
- Maheswari Brothers Coal Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Agrawal Coal Company - India
- Edison Trading Spa - Italy
- Minerals Council of Australia
- South Luzon Thermal Energy Corporation
- Samtan Co., Ltd - South Korea
- Jorong Barutama Greston.PT - Indonesia
- Dalmia Cement Bharat India
- Timah Investasi Mineral - Indoneisa
- Toyota Tsusho Corporation, Japan
- Savvy Resources Ltd - HongKong
- Sojitz Corporation - Japan
- Neyveli Lignite Corporation Ltd, - India
- Iligan Light & Power Inc, Philippines
- Malabar Cements Ltd - India
- London Commodity Brokers - England
- India Bulls Power Limited - India
- IEA Clean Coal Centre - UK
- Planning Commission, India
- MS Steel International - UAE
- Central Electricity Authority - India
- Pipit Mutiara Jaya. PT, Indonesia
- OPG Power Generation Pvt Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- IHS Mccloskey Coal Group - USA
- Holcim Trading Pte Ltd - Singapore
- Economic Council, Georgia
- White Energy Company Limited
- Directorate Of Revenue Intelligence - India
- Attock Cement Pakistan Limited
- Makarim & Taira - Indonesia
- Jindal Steel & Power Ltd - India
- Electricity Authority, New Zealand
- Intertek Mineral Services - Indonesia
- Semirara Mining Corp, Philippines
- Bharathi Cement Corporation - India
- Orica Mining Services - Indonesia
- Indian Energy Exchange, India
- Ceylon Electricity Board - Sri Lanka
- Commonwealth Bank - Australia
- Formosa Plastics Group - Taiwan
- Indika Energy - Indonesia
- Romanian Commodities Exchange
- Krishnapatnam Port Company Ltd. - India
- McConnell Dowell - Australia
- Binh Thuan Hamico - Vietnam
- Petrochimia International Co. Ltd.- Taiwan
- Miang Besar Coal Terminal - Indonesia
- Borneo Indobara - Indonesia
- Bukit Makmur.PT - Indonesia
- Energy Development Corp, Philippines
- Ministry of Finance - Indonesia
- Parliament of New Zealand
- Simpson Spence & Young - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- PTC India Limited - India
- Videocon Industries ltd - India
- Bangladesh Power Developement Board
- Sakthi Sugars Limited - India
- Chettinad Cement Corporation Ltd - India
- ICICI Bank Limited - India
- Australian Coal Association
- Sree Jayajothi Cements Limited - India
- LBH Netherlands Bv - Netherlands
- Aboitiz Power Corporation - Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Oldendorff Carriers - Singapore
- Price Waterhouse Coopers - Russia
- Alfred C Toepfer International GmbH - Germany
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Mjunction Services Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Jaiprakash Power Ventures ltd
- Coastal Gujarat Power Limited - India
- CIMB Investment Bank - Malaysia
- Gujarat Electricity Regulatory Commission - India
- Parry Sugars Refinery, India
- San Jose City I Power Corp, Philippines
- SN Aboitiz Power Inc, Philippines
- Bhushan Steel Limited - India
- Kapuas Tunggal Persada - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Ambuja Cements Ltd - India
- PNOC Exploration Corporation - Philippines
- Vedanta Resources Plc - India
- Larsen & Toubro Limited - India
- Essar Steel Hazira Ltd - India
- Merrill Lynch Commodities Europe
- Gujarat Mineral Development Corp Ltd - India
- Bhatia International Limited - India
- Interocean Group of Companies - India
- Kumho Petrochemical, South Korea
- Eastern Coal Council - USA
- Indo Tambangraya Megah - Indonesia
- Banpu Public Company Limited - Thailand
- VISA Power Limited - India
- Directorate General of MIneral and Coal - Indonesia
- International Coal Ventures Pvt Ltd - India
- Marubeni Corporation - India
- Billiton Holdings Pty Ltd - Australia
- Tata Chemicals Ltd - India
- SMC Global Power, Philippines
- Singapore Mercantile Exchange
- Ministry of Transport, Egypt
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Renaissance Capital - South Africa
- Carbofer General Trading SA - India
- Pendopo Energi Batubara - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Bukit Asam (Persero) Tbk - Indonesia
- Rio Tinto Coal - Australia
- Petron Corporation, Philippines
- Coal and Oil Company - UAE
- Barasentosa Lestari - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Kartika Selabumi Mining - Indonesia
- Mintek Dendrill Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Salva Resources Pvt Ltd - India
- Xindia Steels Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Thiess Contractors Indonesia
- Sindya Power Generating Company Private Ltd
- Uttam Galva Steels Limited - India
- Vizag Seaport Private Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Sinarmas Energy and Mining - Indonesia
- Chamber of Mines of South Africa
- Global Coal Blending Company Limited - Australia
- Electricity Generating Authority of Thailand
- Cement Manufacturers Association - India
- Sarangani Energy Corporation, Philippines
- Global Business Power Corporation, Philippines
- Mercuria Energy - Indonesia
- Bhoruka Overseas - Indonesia
- Straits Asia Resources Limited - Singapore
- Baramulti Group, Indonesia
- Maharashtra Electricity Regulatory Commission - India
- GAC Shipping (India) Pvt Ltd
- ASAPP Information Group - India
- The Treasury - Australian Government
- Kaltim Prima Coal - Indonesia
- Australian Commodity Traders Exchange
- Kobexindo Tractors - Indoneisa
- Medco Energi Mining Internasional
- Mercator Lines Limited - India
- European Bulk Services B.V. - Netherlands
- Global Green Power PLC Corporation, Philippines
- Latin American Coal - Colombia
- Star Paper Mills Limited - India
- Wilmar Investment Holdings
- The University of Queensland
- Standard Chartered Bank - UAE
- Manunggal Multi Energi - Indonesia
- PowerSource Philippines DevCo
- Madhucon Powers Ltd - India
- The State Trading Corporation of India Ltd
- Kideco Jaya Agung - Indonesia
- Ministry of Mines - Canada
- Rashtriya Ispat Nigam Limited - India
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