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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, 01 February 13
HANDY - FLAT; PANAMAX - FLAT TO WEAK; CAPESIZE - WEAK
Handy
The Atlantic market remained stable with no significant movement in rates. Rates from USG to FEast were around USD 17k and Black sea to Feast ...
Thursday, 31 January 13
DRY BULK RATES ON A FALLING PATTERN DUE TO ADVERSE WEATHER CONDITIONS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
The seasonal factor has emerged as the latest catalyst in determining the course of the dry bulk market, as the floods in eastern Australia, the big ...
Thursday, 31 January 13
NEWCASTLE PORT SHIPPED 2.70 MMT OF COAL W/E 28 JANUARY 2013
COALspot.com - Newcastle port in Australia has loaded 2,703,921 MT of thermal and coking coal for week ended 0700 hours 28 January 2013, Newca ...
Thursday, 31 January 13
MMTC TO IMPORT 2.68 MMT OF COAL FOR ARAVALI POWER CORPORATION LTD
COALspot.com: The tender floated by MMTC on behalf of Aravali Power Corporation Ltd, a Joint venture between NTPC and State of Haryana for supply of ...
Wednesday, 30 January 13
TNPL TO SECURE 300K MT OF IMPORTED COAL SUPPLIES AT US$ 75.95 PMT FOR MARCH - AUGUST 2013 DELIVERY
COALspot.com – Chennai based Coastal Energy Private Limited (C&O Group of companies) offered lowest price of US$ 75.95 per met ...
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- Central Java Power - Indonesia
- Indika Energy - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Indian Oil Corporation Limited
- Borneo Indobara - Indonesia
- LBH Netherlands Bv - Netherlands
- VISA Power Limited - India
- Medco Energi Mining Internasional
- Chamber of Mines of South Africa
- Indian Energy Exchange, India
- Larsen & Toubro Limited - India
- Cement Manufacturers Association - India
- Renaissance Capital - South Africa
- Petron Corporation, Philippines
- Bukit Baiduri Energy - Indonesia
- Globalindo Alam Lestari - Indonesia
- Aboitiz Power Corporation - Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Samtan Co., Ltd - South Korea
- Indonesian Coal Mining Association
- Barasentosa Lestari - Indonesia
- McConnell Dowell - Australia
- Bhatia International Limited - India
- Kepco SPC Power Corporation, Philippines
- IEA Clean Coal Centre - UK
- Wood Mackenzie - Singapore
- IHS Mccloskey Coal Group - USA
- Toyota Tsusho Corporation, Japan
- Interocean Group of Companies - India
- Simpson Spence & Young - Indonesia
- Jindal Steel & Power Ltd - India
- The University of Queensland
- Kobexindo Tractors - Indoneisa
- Kumho Petrochemical, South Korea
- Orica Mining Services - Indonesia
- Bukit Makmur.PT - Indonesia
- TeaM Sual Corporation - Philippines
- South Luzon Thermal Energy Corporation
- Videocon Industries ltd - India
- Gujarat Electricity Regulatory Commission - India
- Kartika Selabumi Mining - Indonesia
- Ambuja Cements Ltd - India
- Wilmar Investment Holdings
- International Coal Ventures Pvt Ltd - India
- New Zealand Coal & Carbon
- Intertek Mineral Services - Indonesia
- The State Trading Corporation of India Ltd
- Goldman Sachs - Singapore
- Singapore Mercantile Exchange
- Kohat Cement Company Ltd. - Pakistan
- Deloitte Consulting - India
- Gujarat Mineral Development Corp Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Price Waterhouse Coopers - Russia
- Sarangani Energy Corporation, Philippines
- Indo Tambangraya Megah - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Vijayanagar Sugar Pvt Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Anglo American - United Kingdom
- Ceylon Electricity Board - Sri Lanka
- Sree Jayajothi Cements Limited - India
- Siam City Cement PLC, Thailand
- Alfred C Toepfer International GmbH - Germany
- Tata Chemicals Ltd - India
- Global Green Power PLC Corporation, Philippines
- Global Business Power Corporation, Philippines
- Bangladesh Power Developement Board
- Attock Cement Pakistan Limited
- Coalindo Energy - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Uttam Galva Steels Limited - India
- Sojitz Corporation - Japan
- GN Power Mariveles Coal Plant, Philippines
- Parliament of New Zealand
- Straits Asia Resources Limited - Singapore
- SMC Global Power, Philippines
- Banpu Public Company Limited - Thailand
- Semirara Mining and Power Corporation, Philippines
- ASAPP Information Group - India
- Altura Mining Limited, Indonesia
- PowerSource Philippines DevCo
- Siam City Cement - Thailand
- Coastal Gujarat Power Limited - India
- PNOC Exploration Corporation - Philippines
- Madhucon Powers Ltd - India
- Bhushan Steel Limited - India
- Aditya Birla Group - India
- Binh Thuan Hamico - Vietnam
- GVK Power & Infra Limited - India
- The Treasury - Australian Government
- Billiton Holdings Pty Ltd - Australia
- Cigading International Bulk Terminal - Indonesia
- Lanco Infratech Ltd - India
- Savvy Resources Ltd - HongKong
- Thai Mozambique Logistica
- Carbofer General Trading SA - India
- Georgia Ports Authority, United States
- Mintek Dendrill Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Bayan Resources Tbk. - Indonesia
- Energy Link Ltd, New Zealand
- Petrochimia International Co. Ltd.- Taiwan
- GAC Shipping (India) Pvt Ltd
- Bank of Tokyo Mitsubishi UFJ Ltd
- Trasteel International SA, Italy
- Romanian Commodities Exchange
- Directorate Of Revenue Intelligence - India
- Australian Coal Association
- Asia Pacific Energy Resources Ventures Inc, Philippines
- CIMB Investment Bank - Malaysia
- Rio Tinto Coal - Australia
- Tamil Nadu electricity Board
- Bukit Asam (Persero) Tbk - Indonesia
- Indogreen Group - Indonesia
- Standard Chartered Bank - UAE
- Ministry of Transport, Egypt
- Sakthi Sugars Limited - India
- Baramulti Group, Indonesia
- Riau Bara Harum - Indonesia
- Oldendorff Carriers - Singapore
- Metalloyd Limited - United Kingdom
- Offshore Bulk Terminal Pte Ltd, Singapore
- Posco Energy - South Korea
- Formosa Plastics Group - Taiwan
- Makarim & Taira - Indonesia
- Vizag Seaport Private Limited - India
- Iligan Light & Power Inc, Philippines
- Global Coal Blending Company Limited - Australia
- Star Paper Mills Limited - India
- White Energy Company Limited
- Karbindo Abesyapradhi - Indoneisa
- Jaiprakash Power Ventures ltd
- Heidelberg Cement - Germany
- Essar Steel Hazira Ltd - India
- London Commodity Brokers - England
- Bharathi Cement Corporation - India
- European Bulk Services B.V. - Netherlands
- GMR Energy Limited - India
- Maharashtra Electricity Regulatory Commission - India
- ICICI Bank Limited - India
- Mjunction Services Limited - India
- Vedanta Resources Plc - India
- Australian Commodity Traders Exchange
- Ind-Barath Power Infra Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Holcim Trading Pte Ltd - Singapore
- Antam Resourcindo - Indonesia
- Sical Logistics Limited - India
- CNBM International Corporation - China
- Asmin Koalindo Tuhup - Indonesia
- PTC India Limited - India
- OPG Power Generation Pvt Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Thiess Contractors Indonesia
- Parry Sugars Refinery, India
- Maheswari Brothers Coal Limited - India
- Coal and Oil Company - UAE
- Electricity Authority, New Zealand
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Meenaskhi Energy Private Limited - India
- Electricity Generating Authority of Thailand
- Ministry of Mines - Canada
- Commonwealth Bank - Australia
- Bhoruka Overseas - Indonesia
- Timah Investasi Mineral - Indoneisa
- Independent Power Producers Association of India
- SMG Consultants - Indonesia
- Merrill Lynch Commodities Europe
- Eastern Energy - Thailand
- Sindya Power Generating Company Private Ltd
- Therma Luzon, Inc, Philippines
- Dalmia Cement Bharat India
- Orica Australia Pty. Ltd.
- Mercator Lines Limited - India
- Latin American Coal - Colombia
- Jorong Barutama Greston.PT - Indonesia
- Grasim Industreis Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Manunggal Multi Energi - Indonesia
- Central Electricity Authority - India
- Mercuria Energy - Indonesia
- MS Steel International - UAE
- Africa Commodities Group - South Africa
- Planning Commission, India
- Malabar Cements Ltd - India
- Semirara Mining Corp, Philippines
- Ministry of Finance - Indonesia
- Marubeni Corporation - India
- Minerals Council of Australia
- San Jose City I Power Corp, Philippines
- Pendopo Energi Batubara - Indonesia
- Power Finance Corporation Ltd., India
- Port Waratah Coal Services - Australia
- Xindia Steels Limited - India
- Kaltim Prima Coal - Indonesia
- Chettinad Cement Corporation Ltd - India
- India Bulls Power Limited - India
- Salva Resources Pvt Ltd - India
- Gujarat Sidhee Cement - India
- Sinarmas Energy and Mining - Indonesia
- Leighton Contractors Pty Ltd - Australia
- AsiaOL BioFuels Corp., Philippines
- Agrawal Coal Company - India
- Energy Development Corp, Philippines
- Bulk Trading Sa - Switzerland
- PetroVietnam Power Coal Import and Supply Company
- Edison Trading Spa - Italy
- Eastern Coal Council - USA
- Karaikal Port Pvt Ltd - India
- Economic Council, Georgia
- Meralco Power Generation, Philippines
- Kideco Jaya Agung - Indonesia
- SN Aboitiz Power Inc, Philippines
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