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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, 09 December 12
LOW DEMAND PUSHES CHARTER RATES TOWARDS DOWN - VISTAAR
COALspot.com - The freight market has softened and BDI, The Baltic Dry Index, a measure of shipping costs for dry bulk goods, plunged below 10 ...
Friday, 07 December 12
SHIPPING INDUSTRY LOOKING ON YET ANOTHER TOUGH YEAR AS WE APPROACH 2013 - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
With shipping finance "on the ropes" as traditional lenders appear to be cutting their losses and tonnage oversupply still the most import ...
Thursday, 06 December 12
PANAMAX : THE POSITIVE VIBES IN THE ATLANTIC REMAINS - FEARNLEYS AS
Handy
The Atlantic market is still depressed with dearth of cargoes and more ships. The trips from Continent to Feast fixed around USD 12k. Trips f ...
Thursday, 06 December 12
STRONG CHINESE DEMAND FOR DRY BULK COMMODITIES EXPECTED FOR 2013 - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
A new analysis from BIMCO released yesterday suggests that 2013 is expected to be a stronger year in terms of China's "hunger" for commod ...
Tuesday, 04 December 12
JATENERGY SIGNS MOU FOR INDONESIAN COAL ASSET
COALspot.com - Jatenergy Limited has announced that its fully-owned Indonesian subsidiary, PT Barata Energy (BE), has signed an exclusive, non-bindi ...
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- Trasteel International SA, Italy
- Essar Steel Hazira Ltd - India
- Salva Resources Pvt Ltd - India
- Medco Energi Mining Internasional
- Merrill Lynch Commodities Europe
- Carbofer General Trading SA - India
- Anglo American - United Kingdom
- Vizag Seaport Private Limited - India
- Rio Tinto Coal - Australia
- Petron Corporation, Philippines
- Eastern Energy - Thailand
- Orica Australia Pty. Ltd.
- Coastal Gujarat Power Limited - India
- Gujarat Sidhee Cement - India
- PTC India Limited - India
- TeaM Sual Corporation - Philippines
- Iligan Light & Power Inc, Philippines
- Orica Mining Services - Indonesia
- Kideco Jaya Agung - Indonesia
- Makarim & Taira - Indonesia
- Independent Power Producers Association of India
- Interocean Group of Companies - India
- India Bulls Power Limited - India
- Savvy Resources Ltd - HongKong
- Borneo Indobara - Indonesia
- Alfred C Toepfer International GmbH - Germany
- The State Trading Corporation of India Ltd
- Heidelberg Cement - Germany
- Pendopo Energi Batubara - Indonesia
- The University of Queensland
- Grasim Industreis Ltd - India
- Indogreen Group - Indonesia
- Sical Logistics Limited - India
- Therma Luzon, Inc, Philippines
- Oldendorff Carriers - Singapore
- Samtan Co., Ltd - South Korea
- Kartika Selabumi Mining - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- McConnell Dowell - Australia
- South Luzon Thermal Energy Corporation
- Siam City Cement PLC, Thailand
- Petrochimia International Co. Ltd.- Taiwan
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- SMG Consultants - Indonesia
- Mintek Dendrill Indonesia
- Altura Mining Limited, Indonesia
- Mercator Lines Limited - India
- Wood Mackenzie - Singapore
- Sindya Power Generating Company Private Ltd
- Bhatia International Limited - India
- PowerSource Philippines DevCo
- Indo Tambangraya Megah - Indonesia
- Karaikal Port Pvt Ltd - India
- Electricity Generating Authority of Thailand
- Aditya Birla Group - India
- Parliament of New Zealand
- Bahari Cakrawala Sebuku - Indonesia
- Lanco Infratech Ltd - India
- Ministry of Finance - Indonesia
- Vedanta Resources Plc - India
- Cement Manufacturers Association - India
- Aboitiz Power Corporation - Philippines
- Jaiprakash Power Ventures ltd
- Formosa Plastics Group - Taiwan
- TNB Fuel Sdn Bhd - Malaysia
- Videocon Industries ltd - India
- Eastern Coal Council - USA
- Rashtriya Ispat Nigam Limited - India
- Star Paper Mills Limited - India
- Standard Chartered Bank - UAE
- Holcim Trading Pte Ltd - Singapore
- GAC Shipping (India) Pvt Ltd
- Indonesian Coal Mining Association
- Metalloyd Limited - United Kingdom
- Dalmia Cement Bharat India
- Intertek Mineral Services - Indonesia
- Sree Jayajothi Cements Limited - India
- Kepco SPC Power Corporation, Philippines
- London Commodity Brokers - England
- Bhoruka Overseas - Indonesia
- San Jose City I Power Corp, Philippines
- Electricity Authority, New Zealand
- Xindia Steels Limited - India
- Bukit Makmur.PT - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Chettinad Cement Corporation Ltd - India
- Antam Resourcindo - Indonesia
- Economic Council, Georgia
- Ministry of Transport, Egypt
- Miang Besar Coal Terminal - Indonesia
- Coalindo Energy - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Sojitz Corporation - Japan
- Asmin Koalindo Tuhup - Indonesia
- ICICI Bank Limited - India
- Bayan Resources Tbk. - Indonesia
- Power Finance Corporation Ltd., India
- Goldman Sachs - Singapore
- Bank of Tokyo Mitsubishi UFJ Ltd
- Edison Trading Spa - Italy
- MS Steel International - UAE
- PNOC Exploration Corporation - Philippines
- Global Green Power PLC Corporation, Philippines
- Thiess Contractors Indonesia
- Agrawal Coal Company - India
- Latin American Coal - Colombia
- Thai Mozambique Logistica
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Semirara Mining and Power Corporation, Philippines
- Ministry of Mines - Canada
- Renaissance Capital - South Africa
- Barasentosa Lestari - Indonesia
- CIMB Investment Bank - Malaysia
- AsiaOL BioFuels Corp., Philippines
- Global Coal Blending Company Limited - Australia
- White Energy Company Limited
- Posco Energy - South Korea
- Mjunction Services Limited - India
- Meralco Power Generation, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Vijayanagar Sugar Pvt Ltd - India
- Larsen & Toubro Limited - India
- Global Business Power Corporation, Philippines
- European Bulk Services B.V. - Netherlands
- Meenaskhi Energy Private Limited - India
- Simpson Spence & Young - Indonesia
- New Zealand Coal & Carbon
- Kumho Petrochemical, South Korea
- Straits Asia Resources Limited - Singapore
- Leighton Contractors Pty Ltd - Australia
- Baramulti Group, Indonesia
- Maheswari Brothers Coal Limited - India
- Billiton Holdings Pty Ltd - Australia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- VISA Power Limited - India
- Bharathi Cement Corporation - India
- PetroVietnam Power Coal Import and Supply Company
- Parry Sugars Refinery, India
- The Treasury - Australian Government
- Price Waterhouse Coopers - Russia
- Indian Energy Exchange, India
- Sinarmas Energy and Mining - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Banpu Public Company Limited - Thailand
- Deloitte Consulting - India
- Indika Energy - Indonesia
- Coal and Oil Company - UAE
- Romanian Commodities Exchange
- Ambuja Cements Ltd - India
- GMR Energy Limited - India
- CNBM International Corporation - China
- SN Aboitiz Power Inc, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Globalindo Alam Lestari - Indonesia
- IHS Mccloskey Coal Group - USA
- Minerals Council of Australia
- Uttam Galva Steels Limited - India
- Commonwealth Bank - Australia
- Riau Bara Harum - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Energy Development Corp, Philippines
- Indian Oil Corporation Limited
- Cigading International Bulk Terminal - Indonesia
- Planning Commission, India
- Tata Chemicals Ltd - India
- Toyota Tsusho Corporation, Japan
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Timah Investasi Mineral - Indoneisa
- Siam City Cement - Thailand
- Bukit Asam (Persero) Tbk - Indonesia
- Malabar Cements Ltd - India
- Directorate Of Revenue Intelligence - India
- Sakthi Sugars Limited - India
- Bangladesh Power Developement Board
- Bulk Trading Sa - Switzerland
- LBH Netherlands Bv - Netherlands
- Africa Commodities Group - South Africa
- Kohat Cement Company Ltd. - Pakistan
- Madhucon Powers Ltd - India
- Ind-Barath Power Infra Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Australian Commodity Traders Exchange
- Jorong Barutama Greston.PT - Indonesia
- Tamil Nadu electricity Board
- Kobexindo Tractors - Indoneisa
- Maharashtra Electricity Regulatory Commission - India
- Central Electricity Authority - India
- Kaltim Prima Coal - Indonesia
- IEA Clean Coal Centre - UK
- International Coal Ventures Pvt Ltd - India
- Manunggal Multi Energi - Indonesia
- SMC Global Power, Philippines
- Chamber of Mines of South Africa
- Marubeni Corporation - India
- OPG Power Generation Pvt Ltd - India
- ASAPP Information Group - India
- Singapore Mercantile Exchange
- Jindal Steel & Power Ltd - India
- Semirara Mining Corp, Philippines
- Mercuria Energy - Indonesia
- Binh Thuan Hamico - Vietnam
- Bhushan Steel Limited - India
- GVK Power & Infra Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Australian Coal Association
- Georgia Ports Authority, United States
- Krishnapatnam Port Company Ltd. - India
- Port Waratah Coal Services - Australia
- Sarangani Energy Corporation, Philippines
- Central Java Power - Indonesia
- Energy Link Ltd, New Zealand
- Gujarat Electricity Regulatory Commission - India
- Wilmar Investment Holdings
- Attock Cement Pakistan Limited
- Bukit Baiduri Energy - Indonesia
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