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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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Tuesday, 18 December 12
NEWCASTLE PORT IN AUSTRALIA SHIPPED 20.19 PERCENT MORE COAL W/E 17 DECEMBER 2012
COALspot.com - Newcastle port in Australia has loaded 3,269,640 MT of thermal and coking coal for week ended 0700 hours 17 December 2012, Newc ...
Monday, 17 December 12
SHIP PRICES TO BOTTOM OUT IN 2013 SAYS GEORGE D. GOURDOMICHALIS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
Ship values especially in older tonnage, or even modern vessels with poor quality are expected to fall further during 2013, with the market as a who ...
Monday, 17 December 12
SYNERGISING WITH PIONEERS TO DEVELOP TOMORROW'S LATIN AMERICAN RAILWAYS
Press Release: Brazil being one of the largest country in South America has one of the most dynamic rail markets in the world. Rail transport in Bra ...
Sunday, 16 December 12
FREIGHT TREND SOFTENED THIS WEEK - VISTAAR
COALspot.com - The freight market further softened this week and closed at 784 points (down by 18.84 pct). The cape index had the biggest fall ...
Friday, 14 December 12
GMR GROUP OF INDIA TO IMPORT 100K MT OF 4800 GAR COAL
COALspot.com: GMR Group of India to invite bids for 100,000 Metric Tons of imported non coking coal to be delivered during January and February 2013 ...
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- Central Electricity Authority - India
- Georgia Ports Authority, United States
- OPG Power Generation Pvt Ltd - India
- Central Java Power - Indonesia
- Romanian Commodities Exchange
- Merrill Lynch Commodities Europe
- Semirara Mining Corp, Philippines
- Cigading International Bulk Terminal - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Kaltim Prima Coal - Indonesia
- Makarim & Taira - Indonesia
- Sindya Power Generating Company Private Ltd
- Minerals Council of Australia
- Kohat Cement Company Ltd. - Pakistan
- South Luzon Thermal Energy Corporation
- Indian Oil Corporation Limited
- Ind-Barath Power Infra Limited - India
- Global Business Power Corporation, Philippines
- SMG Consultants - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Wood Mackenzie - Singapore
- Maheswari Brothers Coal Limited - India
- Posco Energy - South Korea
- PNOC Exploration Corporation - Philippines
- Mjunction Services Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Uttam Galva Steels Limited - India
- Krishnapatnam Port Company Ltd. - India
- Lanco Infratech Ltd - India
- GVK Power & Infra Limited - India
- Globalindo Alam Lestari - Indonesia
- Orica Australia Pty. Ltd.
- Billiton Holdings Pty Ltd - Australia
- Vizag Seaport Private Limited - India
- Antam Resourcindo - Indonesia
- Pendopo Energi Batubara - Indonesia
- Latin American Coal - Colombia
- PTC India Limited - India
- LBH Netherlands Bv - Netherlands
- Ministry of Transport, Egypt
- Star Paper Mills Limited - India
- Cement Manufacturers Association - India
- Straits Asia Resources Limited - Singapore
- Interocean Group of Companies - India
- Bharathi Cement Corporation - India
- Mercuria Energy - Indonesia
- Binh Thuan Hamico - Vietnam
- Bayan Resources Tbk. - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Therma Luzon, Inc, Philippines
- Standard Chartered Bank - UAE
- Petron Corporation, Philippines
- CIMB Investment Bank - Malaysia
- Borneo Indobara - Indonesia
- Mintek Dendrill Indonesia
- Indonesian Coal Mining Association
- Essar Steel Hazira Ltd - India
- GAC Shipping (India) Pvt Ltd
- ICICI Bank Limited - India
- Parliament of New Zealand
- Petrochimia International Co. Ltd.- Taiwan
- Bhatia International Limited - India
- Eastern Energy - Thailand
- Offshore Bulk Terminal Pte Ltd, Singapore
- Sree Jayajothi Cements Limited - India
- Aditya Birla Group - India
- Coal and Oil Company - UAE
- Global Green Power PLC Corporation, Philippines
- Electricity Authority, New Zealand
- Renaissance Capital - South Africa
- Metalloyd Limited - United Kingdom
- Kalimantan Lumbung Energi - Indonesia
- Formosa Plastics Group - Taiwan
- Sojitz Corporation - Japan
- Thai Mozambique Logistica
- Vijayanagar Sugar Pvt Ltd - India
- Bangladesh Power Developement Board
- Indo Tambangraya Megah - Indonesia
- Gujarat Sidhee Cement - India
- Planning Commission, India
- Kideco Jaya Agung - Indonesia
- Chettinad Cement Corporation Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- The State Trading Corporation of India Ltd
- Thiess Contractors Indonesia
- SMC Global Power, Philippines
- Meenaskhi Energy Private Limited - India
- Aboitiz Power Corporation - Philippines
- Kobexindo Tractors - Indoneisa
- Attock Cement Pakistan Limited
- Energy Development Corp, Philippines
- Sarangani Energy Corporation, Philippines
- International Coal Ventures Pvt Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Indian Energy Exchange, India
- Bukit Makmur.PT - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Indika Energy - Indonesia
- Electricity Generating Authority of Thailand
- Meralco Power Generation, Philippines
- Jaiprakash Power Ventures ltd
- San Jose City I Power Corp, Philippines
- CNBM International Corporation - China
- Sakthi Sugars Limited - India
- Savvy Resources Ltd - HongKong
- Dalmia Cement Bharat India
- Heidelberg Cement - Germany
- India Bulls Power Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Economic Council, Georgia
- Kumho Petrochemical, South Korea
- Ceylon Electricity Board - Sri Lanka
- Kepco SPC Power Corporation, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Grasim Industreis Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Gujarat Electricity Regulatory Commission - India
- Riau Bara Harum - Indonesia
- Australian Coal Association
- The University of Queensland
- Independent Power Producers Association of India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Salva Resources Pvt Ltd - India
- Goldman Sachs - Singapore
- Orica Mining Services - Indonesia
- Intertek Mineral Services - Indonesia
- Baramulti Group, Indonesia
- Toyota Tsusho Corporation, Japan
- Ministry of Mines - Canada
- IHS Mccloskey Coal Group - USA
- Miang Besar Coal Terminal - Indonesia
- Mercator Lines Limited - India
- Videocon Industries ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Chamber of Mines of South Africa
- Coastal Gujarat Power Limited - India
- Oldendorff Carriers - Singapore
- Medco Energi Mining Internasional
- Global Coal Blending Company Limited - Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- New Zealand Coal & Carbon
- Leighton Contractors Pty Ltd - Australia
- Larsen & Toubro Limited - India
- GMR Energy Limited - India
- Ambuja Cements Ltd - India
- Wilmar Investment Holdings
- Pipit Mutiara Jaya. PT, Indonesia
- Power Finance Corporation Ltd., India
- Africa Commodities Group - South Africa
- Simpson Spence & Young - Indonesia
- Timah Investasi Mineral - Indoneisa
- SN Aboitiz Power Inc, Philippines
- Semirara Mining and Power Corporation, Philippines
- Holcim Trading Pte Ltd - Singapore
- Bukit Asam (Persero) Tbk - Indonesia
- IEA Clean Coal Centre - UK
- Jorong Barutama Greston.PT - Indonesia
- Iligan Light & Power Inc, Philippines
- Singapore Mercantile Exchange
- Bhoruka Overseas - Indonesia
- Directorate Of Revenue Intelligence - India
- Commonwealth Bank - Australia
- Australian Commodity Traders Exchange
- Indogreen Group - Indonesia
- Siam City Cement PLC, Thailand
- The Treasury - Australian Government
- Xindia Steels Limited - India
- Agrawal Coal Company - India
- White Energy Company Limited
- Carbofer General Trading SA - India
- Edison Trading Spa - Italy
- TeaM Sual Corporation - Philippines
- Vedanta Resources Plc - India
- Jindal Steel & Power Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Barasentosa Lestari - Indonesia
- VISA Power Limited - India
- Bukit Baiduri Energy - Indonesia
- Siam City Cement - Thailand
- Marubeni Corporation - India
- Sical Logistics Limited - India
- Bulk Trading Sa - Switzerland
- Rashtriya Ispat Nigam Limited - India
- Eastern Coal Council - USA
- Port Waratah Coal Services - Australia
- Madhucon Powers Ltd - India
- Karaikal Port Pvt Ltd - India
- Energy Link Ltd, New Zealand
- Ministry of Finance - Indonesia
- Anglo American - United Kingdom
- GN Power Mariveles Coal Plant, Philippines
- Parry Sugars Refinery, India
- PowerSource Philippines DevCo
- Neyveli Lignite Corporation Ltd, - India
- European Bulk Services B.V. - Netherlands
- ASAPP Information Group - India
- Deloitte Consulting - India
- McConnell Dowell - Australia
- Directorate General of MIneral and Coal - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Price Waterhouse Coopers - Russia
- Kartika Selabumi Mining - Indonesia
- Banpu Public Company Limited - Thailand
- Tata Chemicals Ltd - India
- Coalindo Energy - Indonesia
- Samtan Co., Ltd - South Korea
- Tamil Nadu electricity Board
- Trasteel International SA, Italy
- London Commodity Brokers - England
- Bhushan Steel Limited - India
- Altura Mining Limited, Indonesia
- Rio Tinto Coal - Australia
- Malabar Cements Ltd - India
- Manunggal Multi Energi - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Gujarat Mineral Development Corp Ltd - India
- MS Steel International - UAE
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