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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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Sunday, 20 January 13
Q1 & Q4 SUB-BIT FOB INDONESIA COAL SWAPS: FIRM
COALspot.com - Sub-Bit Indonesia coal swaps (FOB ) and CFR South China coal shipment for average Q1’ 2013 delivery have gained 0.81percent and ...
Sunday, 20 January 13
S7 & S8 ROUTE FREIGHT TREND IS EXPECTED TO BE FLAT TO SOFT THIS WEEK - VISTAAR
COALspot.com - The freight market was fairly steady with all the indices BDI up by 9.21 pct closing at 837 points. The Cape index was also sharply u ...
Friday, 18 January 13
NEWLEAD HOLDINGS LTD. TO ACQUIRE TWO COAL PROPERTIES WITH ESTIMATED COAL RESERVES OF 18.6 MMT & 143.1 MMT
NewLead Holdings Ltd. Announces Signing Agreement to Acquire Properties with Estimated Coal Reserves of 18.6 Million Tons; Signing Agreement to Acqu ...
Friday, 18 January 13
DRY BULK MARKET ON THE RISE, ON STRONG DEMAND FOR CAPESIZE VESSELS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
The dry bulk market has continued its climbing trend yesterday, as the industry's benchmark, the Baltic Dry Index (BDI) was up by 39 points to 820. ...
Friday, 18 January 13
CAPESIZE : SIGNALS ARE MIXED BUT THE OVERALL TENDENCY IS POSITIVE - FEARNLEYS
Handy
The Atlantic market remained stable with USG-Feast fixed around USD 17k, according to fearnleys’s weekly report.
Continent / Medite ...
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- GMR Energy Limited - India
- OPG Power Generation Pvt Ltd - India
- Iligan Light & Power Inc, Philippines
- Sinarmas Energy and Mining - Indonesia
- Rio Tinto Coal - Australia
- Indian Energy Exchange, India
- Energy Development Corp, Philippines
- Commonwealth Bank - Australia
- Pipit Mutiara Jaya. PT, Indonesia
- Wood Mackenzie - Singapore
- PTC India Limited - India
- Semirara Mining and Power Corporation, Philippines
- Bhatia International Limited - India
- Jindal Steel & Power Ltd - India
- Global Business Power Corporation, Philippines
- Australian Coal Association
- Jaiprakash Power Ventures ltd
- Madhucon Powers Ltd - India
- Globalindo Alam Lestari - Indonesia
- Price Waterhouse Coopers - Russia
- Cigading International Bulk Terminal - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Independent Power Producers Association of India
- Sree Jayajothi Cements Limited - India
- Therma Luzon, Inc, Philippines
- The Treasury - Australian Government
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Oldendorff Carriers - Singapore
- Aditya Birla Group - India
- Gujarat Sidhee Cement - India
- Samtan Co., Ltd - South Korea
- Straits Asia Resources Limited - Singapore
- Meralco Power Generation, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Bharathi Cement Corporation - India
- Rashtriya Ispat Nigam Limited - India
- Bukit Makmur.PT - Indonesia
- Videocon Industries ltd - India
- GAC Shipping (India) Pvt Ltd
- Timah Investasi Mineral - Indoneisa
- Baramulti Group, Indonesia
- Australian Commodity Traders Exchange
- ASAPP Information Group - India
- Kaltim Prima Coal - Indonesia
- Indonesian Coal Mining Association
- Indo Tambangraya Megah - Indonesia
- Planning Commission, India
- Coal and Oil Company - UAE
- Mercator Lines Limited - India
- Electricity Generating Authority of Thailand
- The State Trading Corporation of India Ltd
- Singapore Mercantile Exchange
- GN Power Mariveles Coal Plant, Philippines
- The University of Queensland
- Ministry of Mines - Canada
- Indogreen Group - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- IHS Mccloskey Coal Group - USA
- SN Aboitiz Power Inc, Philippines
- MS Steel International - UAE
- Latin American Coal - Colombia
- Interocean Group of Companies - India
- PetroVietnam Power Coal Import and Supply Company
- Grasim Industreis Ltd - India
- Anglo American - United Kingdom
- Trasteel International SA, Italy
- Manunggal Multi Energi - Indonesia
- Bhushan Steel Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Thai Mozambique Logistica
- Orica Mining Services - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Bayan Resources Tbk. - Indonesia
- Maheswari Brothers Coal Limited - India
- Dalmia Cement Bharat India
- Chettinad Cement Corporation Ltd - India
- Sojitz Corporation - Japan
- Kumho Petrochemical, South Korea
- Toyota Tsusho Corporation, Japan
- India Bulls Power Limited - India
- Intertek Mineral Services - Indonesia
- Edison Trading Spa - Italy
- PNOC Exploration Corporation - Philippines
- Kartika Selabumi Mining - Indonesia
- Thiess Contractors Indonesia
- White Energy Company Limited
- Siam City Cement - Thailand
- Standard Chartered Bank - UAE
- London Commodity Brokers - England
- Global Coal Blending Company Limited - Australia
- Africa Commodities Group - South Africa
- Holcim Trading Pte Ltd - Singapore
- VISA Power Limited - India
- Pendopo Energi Batubara - Indonesia
- Riau Bara Harum - Indonesia
- Aboitiz Power Corporation - Philippines
- LBH Netherlands Bv - Netherlands
- Borneo Indobara - Indonesia
- European Bulk Services B.V. - Netherlands
- Ind-Barath Power Infra Limited - India
- Essar Steel Hazira Ltd - India
- Marubeni Corporation - India
- Kapuas Tunggal Persada - Indonesia
- CNBM International Corporation - China
- International Coal Ventures Pvt Ltd - India
- Ambuja Cements Ltd - India
- Savvy Resources Ltd - HongKong
- Goldman Sachs - Singapore
- Energy Link Ltd, New Zealand
- Parry Sugars Refinery, India
- Kalimantan Lumbung Energi - Indonesia
- Merrill Lynch Commodities Europe
- Vizag Seaport Private Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Minerals Council of Australia
- Siam City Cement PLC, Thailand
- Kohat Cement Company Ltd. - Pakistan
- Agrawal Coal Company - India
- Sarangani Energy Corporation, Philippines
- Romanian Commodities Exchange
- Bukit Baiduri Energy - Indonesia
- Altura Mining Limited, Indonesia
- Ministry of Finance - Indonesia
- Semirara Mining Corp, Philippines
- Mjunction Services Limited - India
- McConnell Dowell - Australia
- Maharashtra Electricity Regulatory Commission - India
- Meenaskhi Energy Private Limited - India
- Salva Resources Pvt Ltd - India
- Karaikal Port Pvt Ltd - India
- Larsen & Toubro Limited - India
- IEA Clean Coal Centre - UK
- Electricity Authority, New Zealand
- Krishnapatnam Port Company Ltd. - India
- CIMB Investment Bank - Malaysia
- Indika Energy - Indonesia
- Mintek Dendrill Indonesia
- Metalloyd Limited - United Kingdom
- Karbindo Abesyapradhi - Indoneisa
- Gujarat Electricity Regulatory Commission - India
- Eastern Energy - Thailand
- Economic Council, Georgia
- Bank of Tokyo Mitsubishi UFJ Ltd
- SMC Global Power, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Xindia Steels Limited - India
- Renaissance Capital - South Africa
- New Zealand Coal & Carbon
- Cement Manufacturers Association - India
- Ministry of Transport, Egypt
- Central Electricity Authority - India
- Antam Resourcindo - Indonesia
- Parliament of New Zealand
- Bulk Trading Sa - Switzerland
- Billiton Holdings Pty Ltd - Australia
- Wilmar Investment Holdings
- Chamber of Mines of South Africa
- ICICI Bank Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Medco Energi Mining Internasional
- Georgia Ports Authority, United States
- Binh Thuan Hamico - Vietnam
- Tata Chemicals Ltd - India
- Posco Energy - South Korea
- Orica Australia Pty. Ltd.
- South Luzon Thermal Energy Corporation
- PowerSource Philippines DevCo
- TNB Fuel Sdn Bhd - Malaysia
- SMG Consultants - Indonesia
- Indian Oil Corporation Limited
- Deloitte Consulting - India
- Sical Logistics Limited - India
- Tamil Nadu electricity Board
- Ceylon Electricity Board - Sri Lanka
- Barasentosa Lestari - Indonesia
- Vedanta Resources Plc - India
- Malabar Cements Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Petron Corporation, Philippines
- Mercuria Energy - Indonesia
- Simpson Spence & Young - Indonesia
- Directorate Of Revenue Intelligence - India
- Lanco Infratech Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Heidelberg Cement - Germany
- Port Waratah Coal Services - Australia
- Coastal Gujarat Power Limited - India
- San Jose City I Power Corp, Philippines
- Bangladesh Power Developement Board
- Central Java Power - Indonesia
- Star Paper Mills Limited - India
- GVK Power & Infra Limited - India
- Coalindo Energy - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Banpu Public Company Limited - Thailand
- TeaM Sual Corporation - Philippines
- Formosa Plastics Group - Taiwan
- Sakthi Sugars Limited - India
- Bhoruka Overseas - Indonesia
- Kobexindo Tractors - Indoneisa
- Eastern Coal Council - USA
- Jorong Barutama Greston.PT - Indonesia
- Global Green Power PLC Corporation, Philippines
- Sindya Power Generating Company Private Ltd
- Power Finance Corporation Ltd., India
- Uttam Galva Steels Limited - India
- Carbofer General Trading SA - India
- Makarim & Taira - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Kideco Jaya Agung - Indonesia
- Kepco SPC Power Corporation, Philippines
- Attock Cement Pakistan Limited
- Offshore Bulk Terminal Pte Ltd, Singapore
- Gujarat Mineral Development Corp Ltd - India
- Miang Besar Coal Terminal - Indonesia
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