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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, 31 December 12
"DISTRESSED", "ECO" AND "FINANCE" ARE THE THREE WORDS WHICH CHARACTERIZED 2012 - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
2012 was yet another year of speculation, anticipation, pessimism and more speculation in the shipping markets. According to the latest weekly repor ...
Saturday, 29 December 12
SHIPBREAKING YARDS IN INDIA DEMOLISH A TOTAL OF 527 VESSELS IN 2012, BREAKING ALL PREVIOUS RECORDS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
India's ship demolition experts of Star Matrix contemplated this week on the issue of why ships in the range of 1,000 and up to 6,500 liquid tons ( ...
Thursday, 27 December 12
A LOOK AT WORLD TRADE PATTERNS DURING 2013 - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
While China's leaders are likely to stick with the 2012 economic growth rate of 7.5% when they chart a course for 2013 - its weakest pace since 199 ...
Thursday, 27 December 12
INDONESIA SHIPPED 33.578* MMT COAL IN NOVEMBER
COALspot.com: Indonesia, the world largest multi grade coal exporter has shipped 33.578* million tons of coal in November 2012. thi ...
Wednesday, 26 December 12
UPDATE ON EXPORT BAN ON RAW MINERALS AND ORE - RITA SUSANTO
COALspot.com - In May 2012, the Minister of Energy and Mineral Resources (“MoEMR”) in Regulation No.7 (“Reg-7”, amended by R ...
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- Malabar Cements Ltd - India
- TeaM Sual Corporation - Philippines
- Sree Jayajothi Cements Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Independent Power Producers Association of India
- Eastern Coal Council - USA
- Ceylon Electricity Board - Sri Lanka
- Miang Besar Coal Terminal - Indonesia
- Bayan Resources Tbk. - Indonesia
- Mintek Dendrill Indonesia
- Ministry of Finance - Indonesia
- Energy Development Corp, Philippines
- Aboitiz Power Corporation - Philippines
- Directorate Of Revenue Intelligence - India
- Bhatia International Limited - India
- New Zealand Coal & Carbon
- Karaikal Port Pvt Ltd - India
- Petron Corporation, Philippines
- Kideco Jaya Agung - Indonesia
- Medco Energi Mining Internasional
- Planning Commission, India
- Jorong Barutama Greston.PT - Indonesia
- Indo Tambangraya Megah - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Binh Thuan Hamico - Vietnam
- Kaltim Prima Coal - Indonesia
- Siam City Cement PLC, Thailand
- Tamil Nadu electricity Board
- Manunggal Multi Energi - Indonesia
- GAC Shipping (India) Pvt Ltd
- Anglo American - United Kingdom
- Riau Bara Harum - Indonesia
- OPG Power Generation Pvt Ltd - India
- Central Electricity Authority - India
- Renaissance Capital - South Africa
- Ambuja Cements Ltd - India
- Grasim Industreis Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Barasentosa Lestari - Indonesia
- Savvy Resources Ltd - HongKong
- LBH Netherlands Bv - Netherlands
- Meenaskhi Energy Private Limited - India
- Bharathi Cement Corporation - India
- Oldendorff Carriers - Singapore
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Coastal Gujarat Power Limited - India
- Romanian Commodities Exchange
- Price Waterhouse Coopers - Russia
- Coalindo Energy - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Uttam Galva Steels Limited - India
- Edison Trading Spa - Italy
- Carbofer General Trading SA - India
- AsiaOL BioFuels Corp., Philippines
- The Treasury - Australian Government
- Thai Mozambique Logistica
- Vedanta Resources Plc - India
- GMR Energy Limited - India
- Port Waratah Coal Services - Australia
- Attock Cement Pakistan Limited
- VISA Power Limited - India
- MS Steel International - UAE
- Makarim & Taira - Indonesia
- International Coal Ventures Pvt Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Therma Luzon, Inc, Philippines
- Sarangani Energy Corporation, Philippines
- Kobexindo Tractors - Indoneisa
- The State Trading Corporation of India Ltd
- Asmin Koalindo Tuhup - Indonesia
- Sakthi Sugars Limited - India
- Orica Australia Pty. Ltd.
- Interocean Group of Companies - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- PowerSource Philippines DevCo
- Vijayanagar Sugar Pvt Ltd - India
- Latin American Coal - Colombia
- Intertek Mineral Services - Indonesia
- Parliament of New Zealand
- CNBM International Corporation - China
- Antam Resourcindo - Indonesia
- SMC Global Power, Philippines
- Billiton Holdings Pty Ltd - Australia
- Singapore Mercantile Exchange
- India Bulls Power Limited - India
- PNOC Exploration Corporation - Philippines
- Indian Energy Exchange, India
- PTC India Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Commonwealth Bank - Australia
- Rio Tinto Coal - Australia
- Wilmar Investment Holdings
- Altura Mining Limited, Indonesia
- Electricity Authority, New Zealand
- Formosa Plastics Group - Taiwan
- Ministry of Transport, Egypt
- Siam City Cement - Thailand
- Simpson Spence & Young - Indonesia
- Global Business Power Corporation, Philippines
- Sinarmas Energy and Mining - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Australian Commodity Traders Exchange
- Global Green Power PLC Corporation, Philippines
- Cement Manufacturers Association - India
- SN Aboitiz Power Inc, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Mercuria Energy - Indonesia
- CIMB Investment Bank - Malaysia
- Borneo Indobara - Indonesia
- Sojitz Corporation - Japan
- Ministry of Mines - Canada
- Indika Energy - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- IHS Mccloskey Coal Group - USA
- London Commodity Brokers - England
- Kalimantan Lumbung Energi - Indonesia
- Goldman Sachs - Singapore
- Energy Link Ltd, New Zealand
- Marubeni Corporation - India
- Toyota Tsusho Corporation, Japan
- Sical Logistics Limited - India
- Rashtriya Ispat Nigam Limited - India
- Metalloyd Limited - United Kingdom
- SMG Consultants - Indonesia
- McConnell Dowell - Australia
- Mercator Lines Limited - India
- Global Coal Blending Company Limited - Australia
- Timah Investasi Mineral - Indoneisa
- Baramulti Group, Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Agrawal Coal Company - India
- Maharashtra Electricity Regulatory Commission - India
- Bangladesh Power Developement Board
- Posco Energy - South Korea
- Kartika Selabumi Mining - Indonesia
- Videocon Industries ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Tata Chemicals Ltd - India
- Coal and Oil Company - UAE
- Sindya Power Generating Company Private Ltd
- Leighton Contractors Pty Ltd - Australia
- Vizag Seaport Private Limited - India
- Indian Oil Corporation Limited
- Wood Mackenzie - Singapore
- Petrochimia International Co. Ltd.- Taiwan
- Economic Council, Georgia
- Lanco Infratech Ltd - India
- European Bulk Services B.V. - Netherlands
- Globalindo Alam Lestari - Indonesia
- Chamber of Mines of South Africa
- Star Paper Mills Limited - India
- Madhucon Powers Ltd - India
- Eastern Energy - Thailand
- The University of Queensland
- Parry Sugars Refinery, India
- Aditya Birla Group - India
- Electricity Generating Authority of Thailand
- Indogreen Group - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Banpu Public Company Limited - Thailand
- Merrill Lynch Commodities Europe
- Indonesian Coal Mining Association
- ICICI Bank Limited - India
- Pendopo Energi Batubara - Indonesia
- Minerals Council of Australia
- Thiess Contractors Indonesia
- Kumho Petrochemical, South Korea
- Meralco Power Generation, Philippines
- GN Power Mariveles Coal Plant, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Xindia Steels Limited - India
- Bulk Trading Sa - Switzerland
- Dalmia Cement Bharat India
- Trasteel International SA, Italy
- White Energy Company Limited
- Georgia Ports Authority, United States
- Ind-Barath Power Infra Limited - India
- Semirara Mining Corp, Philippines
- ASAPP Information Group - India
- San Jose City I Power Corp, Philippines
- Jindal Steel & Power Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Mjunction Services Limited - India
- Iligan Light & Power Inc, Philippines
- Deloitte Consulting - India
- Standard Chartered Bank - UAE
- Larsen & Toubro Limited - India
- Bukit Makmur.PT - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Kohat Cement Company Ltd. - Pakistan
- Bhoruka Overseas - Indonesia
- Bukit Baiduri Energy - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Kepco SPC Power Corporation, Philippines
- Power Finance Corporation Ltd., India
- Straits Asia Resources Limited - Singapore
- Orica Mining Services - Indonesia
- Maheswari Brothers Coal Limited - India
- Holcim Trading Pte Ltd - Singapore
- Bank of Tokyo Mitsubishi UFJ Ltd
- Chettinad Cement Corporation Ltd - India
- Gujarat Sidhee Cement - India
- Semirara Mining and Power Corporation, Philippines
- Samtan Co., Ltd - South Korea
- Bhushan Steel Limited - India
- Alfred C Toepfer International GmbH - Germany
- GVK Power & Infra Limited - India
- IEA Clean Coal Centre - UK
- Central Java Power - Indonesia
- Africa Commodities Group - South Africa
- South Luzon Thermal Energy Corporation
- Australian Coal Association
- Essar Steel Hazira Ltd - India
- Salva Resources Pvt Ltd - India
- Heidelberg Cement - Germany
- Jaiprakash Power Ventures ltd
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