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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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Monday, 28 January 13
BAYAN RESOURCES TO SELL 18 MILLION TONS OF COAL TO GNPOWER MARIVELES COAL PLANT
Publicly-listed PT Bayan Resources announced on Friday that it had signed an agreement on coal sales with Philippine-based GNPower Mariveles Coal Pl ...
Sunday, 27 January 13
CFR SOUTH CHINA COAL SWAPS: WEAK
COALspot.com - Sub-Bit Indonesia coal swaps (FOB ) for average Q1’ 2013 delivery has gained 0.31 percent and CFR South China coal shipment&nbs ...
Sunday, 27 January 13
FREIGHT MARKET: FLAT TO SOFT - VISTAAR
COALspot.com - The freight market was soft and all the indices were down except for handy size.
The BDI was down 4.66 pct closing at 798 points.. ...
Friday, 25 January 13
BOTSWANA GOVERNMENT GRANTS COAL LICENSES TO A-CAP RESOURCES LIMITED
A-Cap Resources Limited has announced that it has been granted coal rights within its Bolau tenements which sit next to the Sese Coal and Power Proj ...
Friday, 25 January 13
SMALL ROOM FOR OPTIMISM FOR THE PROSPECTS OF THE DRY BULK MARKET AS NET FLEET GROWTH IS SLOWING DOWN - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
Despite the fact that the dry bulk market didn't manage to post a rebound during the past year, quite the opposite, as a fast fleet growth and slow ...
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- MS Steel International - UAE
- Leighton Contractors Pty Ltd - Australia
- Tamil Nadu electricity Board
- Banpu Public Company Limited - Thailand
- Bhushan Steel Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Vijayanagar Sugar Pvt Ltd - India
- Indogreen Group - Indonesia
- Wilmar Investment Holdings
- Cigading International Bulk Terminal - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Bulk Trading Sa - Switzerland
- The State Trading Corporation of India Ltd
- IEA Clean Coal Centre - UK
- Jindal Steel & Power Ltd - India
- Meralco Power Generation, Philippines
- Kaltim Prima Coal - Indonesia
- Semirara Mining and Power Corporation, Philippines
- SN Aboitiz Power Inc, Philippines
- ASAPP Information Group - India
- Bhoruka Overseas - Indonesia
- Vizag Seaport Private Limited - India
- Indian Energy Exchange, India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Renaissance Capital - South Africa
- GAC Shipping (India) Pvt Ltd
- PNOC Exploration Corporation - Philippines
- Chamber of Mines of South Africa
- Vedanta Resources Plc - India
- Economic Council, Georgia
- Borneo Indobara - Indonesia
- Indonesian Coal Mining Association
- Iligan Light & Power Inc, Philippines
- AsiaOL BioFuels Corp., Philippines
- Bhatia International Limited - India
- Jaiprakash Power Ventures ltd
- Meenaskhi Energy Private Limited - India
- Posco Energy - South Korea
- Directorate General of MIneral and Coal - Indonesia
- Madhucon Powers Ltd - India
- Binh Thuan Hamico - Vietnam
- Directorate Of Revenue Intelligence - India
- Bukit Baiduri Energy - Indonesia
- Thiess Contractors Indonesia
- San Jose City I Power Corp, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Straits Asia Resources Limited - Singapore
- Eastern Energy - Thailand
- Bharathi Cement Corporation - India
- Planning Commission, India
- Maharashtra Electricity Regulatory Commission - India
- Global Coal Blending Company Limited - Australia
- Asmin Koalindo Tuhup - Indonesia
- Simpson Spence & Young - Indonesia
- IHS Mccloskey Coal Group - USA
- Sical Logistics Limited - India
- Minerals Council of Australia
- Energy Link Ltd, New Zealand
- Miang Besar Coal Terminal - Indonesia
- Central Electricity Authority - India
- Georgia Ports Authority, United States
- Essar Steel Hazira Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Wood Mackenzie - Singapore
- Bukit Asam (Persero) Tbk - Indonesia
- Orica Mining Services - Indonesia
- Kepco SPC Power Corporation, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Australian Commodity Traders Exchange
- Interocean Group of Companies - India
- Merrill Lynch Commodities Europe
- Grasim Industreis Ltd - India
- GMR Energy Limited - India
- Dalmia Cement Bharat India
- Central Java Power - Indonesia
- Riau Bara Harum - Indonesia
- Coastal Gujarat Power Limited - India
- PTC India Limited - India
- Tata Chemicals Ltd - India
- ICICI Bank Limited - India
- Coal and Oil Company - UAE
- Petrochimia International Co. Ltd.- Taiwan
- Siam City Cement - Thailand
- Indika Energy - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Goldman Sachs - Singapore
- Altura Mining Limited, Indonesia
- OPG Power Generation Pvt Ltd - India
- Kapuas Tunggal Persada - Indonesia
- McConnell Dowell - Australia
- Rashtriya Ispat Nigam Limited - India
- Gujarat Electricity Regulatory Commission - India
- Edison Trading Spa - Italy
- Larsen & Toubro Limited - India
- CNBM International Corporation - China
- Global Green Power PLC Corporation, Philippines
- Energy Development Corp, Philippines
- VISA Power Limited - India
- International Coal Ventures Pvt Ltd - India
- Romanian Commodities Exchange
- Pipit Mutiara Jaya. PT, Indonesia
- SMG Consultants - Indonesia
- Bayan Resources Tbk. - Indonesia
- Singapore Mercantile Exchange
- Orica Australia Pty. Ltd.
- Chettinad Cement Corporation Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Ind-Barath Power Infra Limited - India
- Mintek Dendrill Indonesia
- Indo Tambangraya Megah - Indonesia
- South Luzon Thermal Energy Corporation
- Mercator Lines Limited - India
- Krishnapatnam Port Company Ltd. - India
- GVK Power & Infra Limited - India
- Thai Mozambique Logistica
- White Energy Company Limited
- Makarim & Taira - Indonesia
- Port Waratah Coal Services - Australia
- Kartika Selabumi Mining - Indonesia
- Rio Tinto Coal - Australia
- Ambuja Cements Ltd - India
- Baramulti Group, Indonesia
- Power Finance Corporation Ltd., India
- Ministry of Mines - Canada
- Agrawal Coal Company - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Ministry of Transport, Egypt
- Attock Cement Pakistan Limited
- Australian Coal Association
- Price Waterhouse Coopers - Russia
- SMC Global Power, Philippines
- Global Business Power Corporation, Philippines
- Deloitte Consulting - India
- Electricity Generating Authority of Thailand
- Sojitz Corporation - Japan
- Kalimantan Lumbung Energi - Indonesia
- Sakthi Sugars Limited - India
- Medco Energi Mining Internasional
- Antam Resourcindo - Indonesia
- Sree Jayajothi Cements Limited - India
- Parliament of New Zealand
- Gujarat Sidhee Cement - India
- Maheswari Brothers Coal Limited - India
- Formosa Plastics Group - Taiwan
- Toyota Tsusho Corporation, Japan
- LBH Netherlands Bv - Netherlands
- The Treasury - Australian Government
- Marubeni Corporation - India
- New Zealand Coal & Carbon
- CIMB Investment Bank - Malaysia
- TNB Fuel Sdn Bhd - Malaysia
- Carbofer General Trading SA - India
- Petron Corporation, Philippines
- TeaM Sual Corporation - Philippines
- Alfred C Toepfer International GmbH - Germany
- Barasentosa Lestari - Indonesia
- Therma Luzon, Inc, Philippines
- Xindia Steels Limited - India
- Bukit Makmur.PT - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Kohat Cement Company Ltd. - Pakistan
- Coalindo Energy - Indonesia
- Indian Oil Corporation Limited
- Sindya Power Generating Company Private Ltd
- Intertek Mineral Services - Indonesia
- Savvy Resources Ltd - HongKong
- Ministry of Finance - Indonesia
- Metalloyd Limited - United Kingdom
- Mjunction Services Limited - India
- Standard Chartered Bank - UAE
- Aboitiz Power Corporation - Philippines
- Independent Power Producers Association of India
- Videocon Industries ltd - India
- Cement Manufacturers Association - India
- Electricity Authority, New Zealand
- Mercuria Energy - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Parry Sugars Refinery, India
- Kumho Petrochemical, South Korea
- Africa Commodities Group - South Africa
- Ceylon Electricity Board - Sri Lanka
- Commonwealth Bank - Australia
- PowerSource Philippines DevCo
- Oldendorff Carriers - Singapore
- Siam City Cement PLC, Thailand
- Aditya Birla Group - India
- PetroVietnam Power Coal Import and Supply Company
- Karaikal Port Pvt Ltd - India
- Samtan Co., Ltd - South Korea
- Billiton Holdings Pty Ltd - Australia
- Timah Investasi Mineral - Indoneisa
- Lanco Infratech Ltd - India
- Sarangani Energy Corporation, Philippines
- India Bulls Power Limited - India
- Bangladesh Power Developement Board
- Kobexindo Tractors - Indoneisa
- Eastern Coal Council - USA
- Star Paper Mills Limited - India
- Trasteel International SA, Italy
- Semirara Mining Corp, Philippines
- The University of Queensland
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Anglo American - United Kingdom
- Heidelberg Cement - Germany
- Jorong Barutama Greston.PT - Indonesia
- Manunggal Multi Energi - Indonesia
- Malabar Cements Ltd - India
- Uttam Galva Steels Limited - India
- Globalindo Alam Lestari - Indonesia
- European Bulk Services B.V. - Netherlands
- Pendopo Energi Batubara - Indonesia
- Latin American Coal - Colombia
- Kideco Jaya Agung - Indonesia
- Salva Resources Pvt Ltd - India
- London Commodity Brokers - England
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