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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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- Kumho Petrochemical, South Korea
- Toyota Tsusho Corporation, Japan
- Aditya Birla Group - India
- Uttam Galva Steels Limited - India
- Sarangani Energy Corporation, Philippines
- Alfred C Toepfer International GmbH - Germany
- Electricity Generating Authority of Thailand
- Petron Corporation, Philippines
- Independent Power Producers Association of India
- Interocean Group of Companies - India
- Bukit Asam (Persero) Tbk - Indonesia
- Meenaskhi Energy Private Limited - India
- Bharathi Cement Corporation - India
- Energy Link Ltd, New Zealand
- Ind-Barath Power Infra Limited - India
- Ministry of Transport, Egypt
- Malabar Cements Ltd - India
- Price Waterhouse Coopers - Russia
- Sindya Power Generating Company Private Ltd
- Mjunction Services Limited - India
- Krishnapatnam Port Company Ltd. - India
- Bhatia International Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Sojitz Corporation - Japan
- Ceylon Electricity Board - Sri Lanka
- Indika Energy - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Directorate Of Revenue Intelligence - India
- Port Waratah Coal Services - Australia
- Riau Bara Harum - Indonesia
- Bayan Resources Tbk. - Indonesia
- Thiess Contractors Indonesia
- The State Trading Corporation of India Ltd
- IHS Mccloskey Coal Group - USA
- Aboitiz Power Corporation - Philippines
- Bukit Baiduri Energy - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Coal and Oil Company - UAE
- GN Power Mariveles Coal Plant, Philippines
- Orica Australia Pty. Ltd.
- European Bulk Services B.V. - Netherlands
- Siam City Cement PLC, Thailand
- Miang Besar Coal Terminal - Indonesia
- Therma Luzon, Inc, Philippines
- Iligan Light & Power Inc, Philippines
- Indonesian Coal Mining Association
- Kobexindo Tractors - Indoneisa
- Leighton Contractors Pty Ltd - Australia
- Energy Development Corp, Philippines
- Coalindo Energy - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Intertek Mineral Services - Indonesia
- Kaltim Prima Coal - Indonesia
- Australian Commodity Traders Exchange
- Pipit Mutiara Jaya. PT, Indonesia
- Georgia Ports Authority, United States
- Pendopo Energi Batubara - Indonesia
- Siam City Cement - Thailand
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- ICICI Bank Limited - India
- Mercator Lines Limited - India
- Central Electricity Authority - India
- Timah Investasi Mineral - Indoneisa
- Attock Cement Pakistan Limited
- Vedanta Resources Plc - India
- Semirara Mining Corp, Philippines
- CNBM International Corporation - China
- Parry Sugars Refinery, India
- Barasentosa Lestari - Indonesia
- White Energy Company Limited
- Grasim Industreis Ltd - India
- Global Coal Blending Company Limited - Australia
- Semirara Mining and Power Corporation, Philippines
- Ambuja Cements Ltd - India
- Bhoruka Overseas - Indonesia
- London Commodity Brokers - England
- Jorong Barutama Greston.PT - Indonesia
- Tamil Nadu electricity Board
- Madhucon Powers Ltd - India
- Trasteel International SA, Italy
- Star Paper Mills Limited - India
- Global Green Power PLC Corporation, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Orica Mining Services - Indonesia
- Simpson Spence & Young - Indonesia
- The Treasury - Australian Government
- McConnell Dowell - Australia
- Vizag Seaport Private Limited - India
- South Luzon Thermal Energy Corporation
- Kepco SPC Power Corporation, Philippines
- Holcim Trading Pte Ltd - Singapore
- Bahari Cakrawala Sebuku - Indonesia
- Karaikal Port Pvt Ltd - India
- Essar Steel Hazira Ltd - India
- Australian Coal Association
- Anglo American - United Kingdom
- GMR Energy Limited - India
- Makarim & Taira - Indonesia
- Romanian Commodities Exchange
- Chamber of Mines of South Africa
- Bukit Makmur.PT - Indonesia
- VISA Power Limited - India
- Parliament of New Zealand
- Tata Chemicals Ltd - India
- Power Finance Corporation Ltd., India
- Electricity Authority, New Zealand
- PNOC Exploration Corporation - Philippines
- Indo Tambangraya Megah - Indonesia
- New Zealand Coal & Carbon
- Banpu Public Company Limited - Thailand
- International Coal Ventures Pvt Ltd - India
- GVK Power & Infra Limited - India
- Standard Chartered Bank - UAE
- Gujarat Sidhee Cement - India
- Straits Asia Resources Limited - Singapore
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Dalmia Cement Bharat India
- Indian Energy Exchange, India
- Sakthi Sugars Limited - India
- Lanco Infratech Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Eastern Energy - Thailand
- The University of Queensland
- Rashtriya Ispat Nigam Limited - India
- Medco Energi Mining Internasional
- Central Java Power - Indonesia
- Salva Resources Pvt Ltd - India
- Ministry of Mines - Canada
- San Jose City I Power Corp, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Coastal Gujarat Power Limited - India
- Sinarmas Energy and Mining - Indonesia
- LBH Netherlands Bv - Netherlands
- Deloitte Consulting - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Eastern Coal Council - USA
- Singapore Mercantile Exchange
- Larsen & Toubro Limited - India
- India Bulls Power Limited - India
- Jindal Steel & Power Ltd - India
- OPG Power Generation Pvt Ltd - India
- Chettinad Cement Corporation Ltd - India
- SMG Consultants - Indonesia
- Metalloyd Limited - United Kingdom
- Videocon Industries ltd - India
- ASAPP Information Group - India
- Bhushan Steel Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Xindia Steels Limited - India
- Economic Council, Georgia
- Jaiprakash Power Ventures ltd
- Formosa Plastics Group - Taiwan
- Bangladesh Power Developement Board
- SMC Global Power, Philippines
- Samtan Co., Ltd - South Korea
- Borneo Indobara - Indonesia
- Kartika Selabumi Mining - Indonesia
- Oldendorff Carriers - Singapore
- CIMB Investment Bank - Malaysia
- Cigading International Bulk Terminal - Indonesia
- Savvy Resources Ltd - HongKong
- Mercuria Energy - Indonesia
- Thai Mozambique Logistica
- Offshore Bulk Terminal Pte Ltd, Singapore
- Wood Mackenzie - Singapore
- SN Aboitiz Power Inc, Philippines
- Mintek Dendrill Indonesia
- Ministry of Finance - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Bank of Tokyo Mitsubishi UFJ Ltd
- Cement Manufacturers Association - India
- Globalindo Alam Lestari - Indonesia
- Maheswari Brothers Coal Limited - India
- Latin American Coal - Colombia
- Indian Oil Corporation Limited
- Neyveli Lignite Corporation Ltd, - India
- Baramulti Group, Indonesia
- Wilmar Investment Holdings
- Karbindo Abesyapradhi - Indoneisa
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Indogreen Group - Indonesia
- Meralco Power Generation, Philippines
- Rio Tinto Coal - Australia
- Kideco Jaya Agung - Indonesia
- Minerals Council of Australia
- Agrawal Coal Company - India
- Kapuas Tunggal Persada - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Sical Logistics Limited - India
- Global Business Power Corporation, Philippines
- Bulk Trading Sa - Switzerland
- AsiaOL BioFuels Corp., Philippines
- Binh Thuan Hamico - Vietnam
- Carbofer General Trading SA - India
- TeaM Sual Corporation - Philippines
- Antam Resourcindo - Indonesia
- Sree Jayajothi Cements Limited - India
- GAC Shipping (India) Pvt Ltd
- Merrill Lynch Commodities Europe
- Altura Mining Limited, Indonesia
- IEA Clean Coal Centre - UK
- Goldman Sachs - Singapore
- Posco Energy - South Korea
- Marubeni Corporation - India
- Planning Commission, India
- Manunggal Multi Energi - Indonesia
- Gujarat Electricity Regulatory Commission - India
- PTC India Limited - India
- MS Steel International - UAE
- PowerSource Philippines DevCo
- Renaissance Capital - South Africa
- Commonwealth Bank - Australia
- Edison Trading Spa - Italy
- Africa Commodities Group - South Africa
- Heidelberg Cement - Germany
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