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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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Thursday, 03 January 13
DRY BULK DEMAND TO KEEP RISING IN 2013, DRY BULK SHIP PRICES TO KEEP FALLING SAYS ANALYST - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
In a recent report on the future of the shipping markets, DVB bank said that dry bulk demand is expected to keep on growing in the coming years, mai ...
Wednesday, 02 January 13
NEWCASTLE PORT SHIPPED 23.61 PERCENT MORE COAL W-W
COALspot.com - Newcastle port in Australia has loaded 3,533,183 MT of thermal and coking coal for week ended 0700 hours 31 December 2012, Newc ...
Wednesday, 02 January 13
DRY BULK MARKET TO STAY ELEVATED IN START OF 2013 BUT THE NEW YEAR WILL NOT BE WITHOUT TURBULENCE - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
In its regular update on the dry bulk market, BIMCO forecasted, that Capesize time-charter rates are expected to stay elevated in the following six ...
Monday, 31 December 12
KOSEP IS LOOKING FOR 280K MT OF 4600 NCV COAL FOR APRIL - JUNE 2013
COALspot.com : South Korean state-owned utility Korea South-East Power Co., Ltd. (KOSEP), has issued an new tender for prompt supply of 280,00 ...
Monday, 31 December 12
VALE CELEBRATES ARRIVAL OF "VALE SOHAR" BULK CARRIER TO SULTANATE WITH MEMBERS OF COMMUNITY
'Vale Sohar', one of the largest bulk carriers in the world, was welcomed to Oman by members of the North Al Batinah community headed by H.E. Shei ...
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Showing 4441 to 4445 news of total 6871 |
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- Vedanta Resources Plc - India
- Indonesian Coal Mining Association
- Savvy Resources Ltd - HongKong
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Ceylon Electricity Board - Sri Lanka
- Vizag Seaport Private Limited - India
- Indian Energy Exchange, India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Energy Development Corp, Philippines
- Kumho Petrochemical, South Korea
- Manunggal Multi Energi - Indonesia
- Riau Bara Harum - Indonesia
- Ind-Barath Power Infra Limited - India
- CNBM International Corporation - China
- ASAPP Information Group - India
- Directorate General of MIneral and Coal - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Formosa Plastics Group - Taiwan
- Thiess Contractors Indonesia
- Sinarmas Energy and Mining - Indonesia
- Trasteel International SA, Italy
- GMR Energy Limited - India
- Indika Energy - Indonesia
- White Energy Company Limited
- San Jose City I Power Corp, Philippines
- Essar Steel Hazira Ltd - India
- Sakthi Sugars Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Altura Mining Limited, Indonesia
- Petron Corporation, Philippines
- Bharathi Cement Corporation - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Semirara Mining and Power Corporation, Philippines
- The University of Queensland
- Jindal Steel & Power Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Semirara Mining Corp, Philippines
- Rio Tinto Coal - Australia
- Aditya Birla Group - India
- Lanco Infratech Ltd - India
- Sindya Power Generating Company Private Ltd
- Commonwealth Bank - Australia
- Anglo American - United Kingdom
- Oldendorff Carriers - Singapore
- Minerals Council of Australia
- Cement Manufacturers Association - India
- Binh Thuan Hamico - Vietnam
- Parry Sugars Refinery, India
- Kepco SPC Power Corporation, Philippines
- Alfred C Toepfer International GmbH - Germany
- Ambuja Cements Ltd - India
- Latin American Coal - Colombia
- Orica Mining Services - Indonesia
- Jaiprakash Power Ventures ltd
- Romanian Commodities Exchange
- CIMB Investment Bank - Malaysia
- Posco Energy - South Korea
- Australian Coal Association
- The Treasury - Australian Government
- Meenaskhi Energy Private Limited - India
- Billiton Holdings Pty Ltd - Australia
- Kohat Cement Company Ltd. - Pakistan
- Wilmar Investment Holdings
- Port Waratah Coal Services - Australia
- Tamil Nadu electricity Board
- South Luzon Thermal Energy Corporation
- Bhoruka Overseas - Indonesia
- Power Finance Corporation Ltd., India
- Gujarat Electricity Regulatory Commission - India
- Global Coal Blending Company Limited - Australia
- Karbindo Abesyapradhi - Indoneisa
- Ministry of Finance - Indonesia
- Kideco Jaya Agung - Indonesia
- Sarangani Energy Corporation, Philippines
- Kobexindo Tractors - Indoneisa
- Heidelberg Cement - Germany
- GVK Power & Infra Limited - India
- Banpu Public Company Limited - Thailand
- Timah Investasi Mineral - Indoneisa
- Renaissance Capital - South Africa
- Global Green Power PLC Corporation, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Meralco Power Generation, Philippines
- Straits Asia Resources Limited - Singapore
- Cigading International Bulk Terminal - Indonesia
- Central Java Power - Indonesia
- Dalmia Cement Bharat India
- Barasentosa Lestari - Indonesia
- Maheswari Brothers Coal Limited - India
- PetroVietnam Power Coal Import and Supply Company
- MS Steel International - UAE
- Sojitz Corporation - Japan
- Metalloyd Limited - United Kingdom
- Georgia Ports Authority, United States
- Attock Cement Pakistan Limited
- Kapuas Tunggal Persada - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Parliament of New Zealand
- Rashtriya Ispat Nigam Limited - India
- London Commodity Brokers - England
- Toyota Tsusho Corporation, Japan
- Coastal Gujarat Power Limited - India
- Kartika Selabumi Mining - Indonesia
- Madhucon Powers Ltd - India
- Siam City Cement - Thailand
- TNB Fuel Sdn Bhd - Malaysia
- International Coal Ventures Pvt Ltd - India
- Salva Resources Pvt Ltd - India
- Electricity Authority, New Zealand
- Kaltim Prima Coal - Indonesia
- GAC Shipping (India) Pvt Ltd
- Eastern Coal Council - USA
- Indo Tambangraya Megah - Indonesia
- Aboitiz Power Corporation - Philippines
- Bukit Makmur.PT - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Coalindo Energy - Indonesia
- Bulk Trading Sa - Switzerland
- Samtan Co., Ltd - South Korea
- Energy Link Ltd, New Zealand
- Thai Mozambique Logistica
- Agrawal Coal Company - India
- Gujarat Sidhee Cement - India
- Orica Australia Pty. Ltd.
- New Zealand Coal & Carbon
- Indogreen Group - Indonesia
- Price Waterhouse Coopers - Russia
- Pipit Mutiara Jaya. PT, Indonesia
- VISA Power Limited - India
- Marubeni Corporation - India
- Merrill Lynch Commodities Europe
- Simpson Spence & Young - Indonesia
- Malabar Cements Ltd - India
- Antam Resourcindo - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Chamber of Mines of South Africa
- Interocean Group of Companies - India
- Ministry of Mines - Canada
- Electricity Generating Authority of Thailand
- IEA Clean Coal Centre - UK
- Siam City Cement PLC, Thailand
- Central Electricity Authority - India
- Directorate Of Revenue Intelligence - India
- Bukit Asam (Persero) Tbk - Indonesia
- Bangladesh Power Developement Board
- Standard Chartered Bank - UAE
- Petrochimia International Co. Ltd.- Taiwan
- Eastern Energy - Thailand
- Larsen & Toubro Limited - India
- Medco Energi Mining Internasional
- Iligan Light & Power Inc, Philippines
- Mercuria Energy - Indonesia
- Borneo Indobara - Indonesia
- European Bulk Services B.V. - Netherlands
- LBH Netherlands Bv - Netherlands
- Singapore Mercantile Exchange
- Baramulti Group, Indonesia
- Bhushan Steel Limited - India
- Uttam Galva Steels Limited - India
- The State Trading Corporation of India Ltd
- Wood Mackenzie - Singapore
- Globalindo Alam Lestari - Indonesia
- Edison Trading Spa - Italy
- Planning Commission, India
- Karaikal Port Pvt Ltd - India
- Deloitte Consulting - India
- Indian Oil Corporation Limited
- Ministry of Transport, Egypt
- Krishnapatnam Port Company Ltd. - India
- Makarim & Taira - Indonesia
- Grasim Industreis Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Miang Besar Coal Terminal - Indonesia
- Therma Luzon, Inc, Philippines
- Coal and Oil Company - UAE
- PowerSource Philippines DevCo
- Neyveli Lignite Corporation Ltd, - India
- Economic Council, Georgia
- Jorong Barutama Greston.PT - Indonesia
- TeaM Sual Corporation - Philippines
- IHS Mccloskey Coal Group - USA
- Goldman Sachs - Singapore
- Africa Commodities Group - South Africa
- Pendopo Energi Batubara - Indonesia
- SMG Consultants - Indonesia
- ICICI Bank Limited - India
- OPG Power Generation Pvt Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Xindia Steels Limited - India
- Mjunction Services Limited - India
- Star Paper Mills Limited - India
- PTC India Limited - India
- McConnell Dowell - Australia
- AsiaOL BioFuels Corp., Philippines
- Bukit Baiduri Energy - Indonesia
- Chettinad Cement Corporation Ltd - India
- India Bulls Power Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Sree Jayajothi Cements Limited - India
- Videocon Industries ltd - India
- Mercator Lines Limited - India
- Global Business Power Corporation, Philippines
- Carbofer General Trading SA - India
- Mintek Dendrill Indonesia
- Tata Chemicals Ltd - India
- Holcim Trading Pte Ltd - Singapore
- SMC Global Power, Philippines
- Australian Commodity Traders Exchange
- SN Aboitiz Power Inc, Philippines
- Independent Power Producers Association of India
- Bhatia International Limited - India
- Bayan Resources Tbk. - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- PNOC Exploration Corporation - Philippines
- Intertek Mineral Services - Indonesia
- Sical Logistics Limited - India
- Kalimantan Lumbung Energi - Indonesia
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