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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, 29 November 12
BUMI TO PRODUCE 100 MILLION TONS OF COAL BY 2014
COALspot.com - Expansions on both BUMI’ s subsidiaries, PT Kaltim Prima Coal (KPC) and PT Arutmin Indonesia ( Arutmin) , are ...
Thursday, 29 November 12
PANAMAX : A FAIRLY STEADY MARKET WITH USD 8.5-9K/DAY FOR 2 LADEN LEGS IN ATLANTIC - FEARNLEYS
Handy
The Atlantic market continues to remain quiet due to more supply of ships. Rates from USG to Far East were around USD 18k and Black Sea to Fa ...
Thursday, 29 November 12
DRY BULK MARKET SLIGHTLY HIGHER DESPITE LULL ACTIVITY - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
The dry bulk market was marginally higher yesterday, according to the industry's benchmark, the Baltic Dry Index (BDI), which rose by 7 points to 1 ...
Wednesday, 28 November 12
NEWBUILDING ORDERING PICKS UP AS SHIP OWNERS LOOK TO CLOSE DEALS BEFORE THE END OF THE YEAR - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
Ship owners are active once again in the newbuilding ordering market, as they look to clinch deals ahead of the end of the year. Once again their fo ...
Tuesday, 27 November 12
NEWCASTLE PORT HAS SHIPPED 1.79 MILLION TONS OF COAL W/E 26 NOVEMBER
COALspot.com - Newcastle port in Australia has loaded 1,793,841 MT of thermal and coking coal for week ended 0700 hours 26 November 2012, Newc ...
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Showing 4481 to 4485 news of total 6871 |
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- Thiess Contractors Indonesia
- Kepco SPC Power Corporation, Philippines
- Orica Mining Services - Indonesia
- Power Finance Corporation Ltd., India
- Baramulti Group, Indonesia
- New Zealand Coal & Carbon
- Price Waterhouse Coopers - Russia
- Rio Tinto Coal - Australia
- India Bulls Power Limited - India
- Mjunction Services Limited - India
- Bharathi Cement Corporation - India
- Australian Coal Association
- Bhushan Steel Limited - India
- London Commodity Brokers - England
- Iligan Light & Power Inc, Philippines
- Eastern Energy - Thailand
- Antam Resourcindo - Indonesia
- Mercator Lines Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Sical Logistics Limited - India
- SMG Consultants - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Intertek Mineral Services - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Jindal Steel & Power Ltd - India
- Energy Development Corp, Philippines
- Savvy Resources Ltd - HongKong
- Malabar Cements Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Thai Mozambique Logistica
- Straits Asia Resources Limited - Singapore
- Indika Energy - Indonesia
- Meralco Power Generation, Philippines
- PowerSource Philippines DevCo
- Bukit Baiduri Energy - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Neyveli Lignite Corporation Ltd, - India
- Therma Luzon, Inc, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Petrochimia International Co. Ltd.- Taiwan
- Bukit Asam (Persero) Tbk - Indonesia
- Videocon Industries ltd - India
- Maheswari Brothers Coal Limited - India
- IEA Clean Coal Centre - UK
- The Treasury - Australian Government
- Marubeni Corporation - India
- Chamber of Mines of South Africa
- Ambuja Cements Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Metalloyd Limited - United Kingdom
- Minerals Council of Australia
- Tamil Nadu electricity Board
- Bulk Trading Sa - Switzerland
- Electricity Generating Authority of Thailand
- Barasentosa Lestari - Indonesia
- Romanian Commodities Exchange
- Lanco Infratech Ltd - India
- Sakthi Sugars Limited - India
- Aditya Birla Group - India
- Interocean Group of Companies - India
- Orica Australia Pty. Ltd.
- Kumho Petrochemical, South Korea
- Larsen & Toubro Limited - India
- Coalindo Energy - Indonesia
- Chettinad Cement Corporation Ltd - India
- Deloitte Consulting - India
- Georgia Ports Authority, United States
- Standard Chartered Bank - UAE
- Asmin Koalindo Tuhup - Indonesia
- European Bulk Services B.V. - Netherlands
- Global Green Power PLC Corporation, Philippines
- Formosa Plastics Group - Taiwan
- Gujarat Mineral Development Corp Ltd - India
- Indo Tambangraya Megah - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Vedanta Resources Plc - India
- Coastal Gujarat Power Limited - India
- Gujarat Electricity Regulatory Commission - India
- Parliament of New Zealand
- Jaiprakash Power Ventures ltd
- CNBM International Corporation - China
- Gujarat Sidhee Cement - India
- Bhatia International Limited - India
- Planning Commission, India
- Holcim Trading Pte Ltd - Singapore
- Semirara Mining Corp, Philippines
- Singapore Mercantile Exchange
- Cement Manufacturers Association - India
- McConnell Dowell - Australia
- Sinarmas Energy and Mining - Indonesia
- Madhucon Powers Ltd - India
- Grasim Industreis Ltd - India
- South Luzon Thermal Energy Corporation
- Alfred C Toepfer International GmbH - Germany
- Rashtriya Ispat Nigam Limited - India
- Krishnapatnam Port Company Ltd. - India
- Tata Chemicals Ltd - India
- IHS Mccloskey Coal Group - USA
- GAC Shipping (India) Pvt Ltd
- Wilmar Investment Holdings
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Siam City Cement PLC, Thailand
- Medco Energi Mining Internasional
- Indian Energy Exchange, India
- Semirara Mining and Power Corporation, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Makarim & Taira - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Ceylon Electricity Board - Sri Lanka
- Siam City Cement - Thailand
- Uttam Galva Steels Limited - India
- Directorate Of Revenue Intelligence - India
- Salva Resources Pvt Ltd - India
- Mintek Dendrill Indonesia
- Oldendorff Carriers - Singapore
- ASAPP Information Group - India
- Kohat Cement Company Ltd. - Pakistan
- Parry Sugars Refinery, India
- Eastern Coal Council - USA
- Dalmia Cement Bharat India
- Essar Steel Hazira Ltd - India
- Vizag Seaport Private Limited - India
- OPG Power Generation Pvt Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Kaltim Prima Coal - Indonesia
- Edison Trading Spa - Italy
- CIMB Investment Bank - Malaysia
- Kideco Jaya Agung - Indonesia
- Leighton Contractors Pty Ltd - Australia
- The University of Queensland
- Karaikal Port Pvt Ltd - India
- Merrill Lynch Commodities Europe
- Pendopo Energi Batubara - Indonesia
- Kartika Selabumi Mining - Indonesia
- PNOC Exploration Corporation - Philippines
- Directorate General of MIneral and Coal - Indonesia
- Anglo American - United Kingdom
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Samtan Co., Ltd - South Korea
- Toyota Tsusho Corporation, Japan
- GVK Power & Infra Limited - India
- Heidelberg Cement - Germany
- Bukit Makmur.PT - Indonesia
- GMR Energy Limited - India
- Wood Mackenzie - Singapore
- Commonwealth Bank - Australia
- Central Java Power - Indonesia
- White Energy Company Limited
- Kapuas Tunggal Persada - Indonesia
- Ind-Barath Power Infra Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- LBH Netherlands Bv - Netherlands
- Cigading International Bulk Terminal - Indonesia
- ICICI Bank Limited - India
- Riau Bara Harum - Indonesia
- The State Trading Corporation of India Ltd
- Xindia Steels Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Borneo Indobara - Indonesia
- Electricity Authority, New Zealand
- Central Electricity Authority - India
- Meenaskhi Energy Private Limited - India
- Africa Commodities Group - South Africa
- Carbofer General Trading SA - India
- San Jose City I Power Corp, Philippines
- International Coal Ventures Pvt Ltd - India
- SN Aboitiz Power Inc, Philippines
- Banpu Public Company Limited - Thailand
- Ministry of Mines - Canada
- PTC India Limited - India
- Attock Cement Pakistan Limited
- Port Waratah Coal Services - Australia
- Binh Thuan Hamico - Vietnam
- Kalimantan Lumbung Energi - Indonesia
- Indogreen Group - Indonesia
- Star Paper Mills Limited - India
- Timah Investasi Mineral - Indoneisa
- Coal and Oil Company - UAE
- Sarangani Energy Corporation, Philippines
- VISA Power Limited - India
- MS Steel International - UAE
- Renaissance Capital - South Africa
- PetroVietnam Power Coal Import and Supply Company
- Global Business Power Corporation, Philippines
- Bhoruka Overseas - Indonesia
- Trasteel International SA, Italy
- TeaM Sual Corporation - Philippines
- Economic Council, Georgia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Global Coal Blending Company Limited - Australia
- Globalindo Alam Lestari - Indonesia
- Ministry of Finance - Indonesia
- Bangladesh Power Developement Board
- AsiaOL BioFuels Corp., Philippines
- Agrawal Coal Company - India
- Sree Jayajothi Cements Limited - India
- Indian Oil Corporation Limited
- Simpson Spence & Young - Indonesia
- Kobexindo Tractors - Indoneisa
- SMC Global Power, Philippines
- Petron Corporation, Philippines
- Energy Link Ltd, New Zealand
- Aboitiz Power Corporation - Philippines
- Independent Power Producers Association of India
- Sojitz Corporation - Japan
- Bayan Resources Tbk. - Indonesia
- Indonesian Coal Mining Association
- Sindya Power Generating Company Private Ltd
- Posco Energy - South Korea
- Latin American Coal - Colombia
- Goldman Sachs - Singapore
- Ministry of Transport, Egypt
- Altura Mining Limited, Indonesia
- Manunggal Multi Energi - Indonesia
- Australian Commodity Traders Exchange
- Mercuria Energy - Indonesia
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