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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, 25 November 12
INDONESIA TO INDIA SUPRAMAX FREIGHT RATES ARE EXPECTED TO BE FIRM - VISTAAR
COALspot.com - The freight market was buoyant this week with all sectors up except for the Cape size index. The BDI was up by 5.21 pct closing at 10 ...
Sunday, 25 November 12
INDONESIAN SUB BITUMINOUS COAL SWAP CONTRACTS SLIDE
COALspot.com - Sub-Bit Indonesia coal swaps (FOB ) for February 2013 delivery lost 0.76percent WoW but gained 0.16 percent DoD on Friday ...
Saturday, 24 November 12
DELTA DUNIA MAKMUR PRODUCES 3.2 MILLION TONS OF COAL IN OCTOBER
COALspot.com - PT Delta Dunia Makmur Tbk., has removed 31.1 million bcm* (-4.0% YoY) of Overburden in October 2012 totaled while coal production was ...
Friday, 23 November 12
CHOOSING THE RIGHT TIME TO INVEST IN NEW VESSELS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
Shipping is all about timing, a process often rising to the height of artform, as ship owners are having to pick the exact moment of selling most of ...
Thursday, 22 November 12
HANDY: INDO-INDIA, LARGE ECO SUPRA NOW FIXED AT USD 12500 - FEARNRESEARCH
Handy
The north Continent is seeing plenty of tonnages but lack of cargoes. TA business are around 11k and fronthaul is around 17k.Tonnages has tig ...
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- ICICI Bank Limited - India
- Alfred C Toepfer International GmbH - Germany
- Essar Steel Hazira Ltd - India
- Chettinad Cement Corporation Ltd - India
- SMG Consultants - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Directorate Of Revenue Intelligence - India
- Siam City Cement - Thailand
- Global Coal Blending Company Limited - Australia
- Vedanta Resources Plc - India
- Wood Mackenzie - Singapore
- Kohat Cement Company Ltd. - Pakistan
- AsiaOL BioFuels Corp., Philippines
- CNBM International Corporation - China
- Bayan Resources Tbk. - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Planning Commission, India
- Edison Trading Spa - Italy
- Meenaskhi Energy Private Limited - India
- Billiton Holdings Pty Ltd - Australia
- Mercator Lines Limited - India
- Africa Commodities Group - South Africa
- Interocean Group of Companies - India
- Energy Development Corp, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Electricity Authority, New Zealand
- Tamil Nadu electricity Board
- Romanian Commodities Exchange
- Barasentosa Lestari - Indonesia
- Thiess Contractors Indonesia
- Simpson Spence & Young - Indonesia
- GVK Power & Infra Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Timah Investasi Mineral - Indoneisa
- Indika Energy - Indonesia
- Independent Power Producers Association of India
- OPG Power Generation Pvt Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Petron Corporation, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Makarim & Taira - Indonesia
- Therma Luzon, Inc, Philippines
- Heidelberg Cement - Germany
- Banpu Public Company Limited - Thailand
- IEA Clean Coal Centre - UK
- Oldendorff Carriers - Singapore
- Bhatia International Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Orica Australia Pty. Ltd.
- Grasim Industreis Ltd - India
- Indian Oil Corporation Limited
- Kartika Selabumi Mining - Indonesia
- Economic Council, Georgia
- Krishnapatnam Port Company Ltd. - India
- Sindya Power Generating Company Private Ltd
- International Coal Ventures Pvt Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Iligan Light & Power Inc, Philippines
- Bukit Baiduri Energy - Indonesia
- Altura Mining Limited, Indonesia
- Standard Chartered Bank - UAE
- Globalindo Alam Lestari - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bhoruka Overseas - Indonesia
- Energy Link Ltd, New Zealand
- Star Paper Mills Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Commonwealth Bank - Australia
- Cement Manufacturers Association - India
- Kepco SPC Power Corporation, Philippines
- Pendopo Energi Batubara - Indonesia
- PNOC Exploration Corporation - Philippines
- Xindia Steels Limited - India
- White Energy Company Limited
- Indonesian Coal Mining Association
- Bukit Makmur.PT - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Metalloyd Limited - United Kingdom
- Formosa Plastics Group - Taiwan
- Coalindo Energy - Indonesia
- Larsen & Toubro Limited - India
- Georgia Ports Authority, United States
- Bahari Cakrawala Sebuku - Indonesia
- Binh Thuan Hamico - Vietnam
- Pipit Mutiara Jaya. PT, Indonesia
- Ministry of Finance - Indonesia
- Parliament of New Zealand
- Global Green Power PLC Corporation, Philippines
- Uttam Galva Steels Limited - India
- Tata Chemicals Ltd - India
- Ministry of Transport, Egypt
- Central Electricity Authority - India
- Trasteel International SA, Italy
- VISA Power Limited - India
- Price Waterhouse Coopers - Russia
- Dalmia Cement Bharat India
- Posco Energy - South Korea
- Coal and Oil Company - UAE
- European Bulk Services B.V. - Netherlands
- Ambuja Cements Ltd - India
- Karaikal Port Pvt Ltd - India
- Sojitz Corporation - Japan
- Ind-Barath Power Infra Limited - India
- Jaiprakash Power Ventures ltd
- Ministry of Mines - Canada
- Offshore Bulk Terminal Pte Ltd, Singapore
- The University of Queensland
- SMC Global Power, Philippines
- Manunggal Multi Energi - Indonesia
- Aboitiz Power Corporation - Philippines
- Wilmar Investment Holdings
- Rio Tinto Coal - Australia
- GMR Energy Limited - India
- Port Waratah Coal Services - Australia
- Eastern Energy - Thailand
- Medco Energi Mining Internasional
- Kaltim Prima Coal - Indonesia
- Borneo Indobara - Indonesia
- Electricity Generating Authority of Thailand
- Vizag Seaport Private Limited - India
- Maheswari Brothers Coal Limited - India
- Riau Bara Harum - Indonesia
- Savvy Resources Ltd - HongKong
- Agrawal Coal Company - India
- Maharashtra Electricity Regulatory Commission - India
- Orica Mining Services - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- TNB Fuel Sdn Bhd - Malaysia
- Bulk Trading Sa - Switzerland
- Deloitte Consulting - India
- Latin American Coal - Colombia
- Merrill Lynch Commodities Europe
- The State Trading Corporation of India Ltd
- Anglo American - United Kingdom
- Meralco Power Generation, Philippines
- Kobexindo Tractors - Indoneisa
- Central Java Power - Indonesia
- Australian Commodity Traders Exchange
- Baramulti Group, Indonesia
- The Treasury - Australian Government
- Jorong Barutama Greston.PT - Indonesia
- LBH Netherlands Bv - Netherlands
- Bank of Tokyo Mitsubishi UFJ Ltd
- PetroVietnam Power Coal Import and Supply Company
- London Commodity Brokers - England
- Toyota Tsusho Corporation, Japan
- Marubeni Corporation - India
- Sical Logistics Limited - India
- GAC Shipping (India) Pvt Ltd
- Indogreen Group - Indonesia
- McConnell Dowell - Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Aditya Birla Group - India
- Gujarat Sidhee Cement - India
- CIMB Investment Bank - Malaysia
- Australian Coal Association
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Indian Energy Exchange, India
- Rashtriya Ispat Nigam Limited - India
- Minerals Council of Australia
- Sree Jayajothi Cements Limited - India
- Samtan Co., Ltd - South Korea
- Siam City Cement PLC, Thailand
- Semirara Mining Corp, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Bharathi Cement Corporation - India
- Salva Resources Pvt Ltd - India
- Coastal Gujarat Power Limited - India
- Bangladesh Power Developement Board
- Kideco Jaya Agung - Indonesia
- Renaissance Capital - South Africa
- Vijayanagar Sugar Pvt Ltd - India
- PTC India Limited - India
- Malabar Cements Ltd - India
- Straits Asia Resources Limited - Singapore
- Semirara Mining and Power Corporation, Philippines
- Intertek Mineral Services - Indonesia
- New Zealand Coal & Carbon
- Parry Sugars Refinery, India
- Singapore Mercantile Exchange
- Madhucon Powers Ltd - India
- Antam Resourcindo - Indonesia
- San Jose City I Power Corp, Philippines
- Thai Mozambique Logistica
- PowerSource Philippines DevCo
- Lanco Infratech Ltd - India
- Carbofer General Trading SA - India
- IHS Mccloskey Coal Group - USA
- GN Power Mariveles Coal Plant, Philippines
- Sakthi Sugars Limited - India
- Mjunction Services Limited - India
- Eastern Coal Council - USA
- MS Steel International - UAE
- Jindal Steel & Power Ltd - India
- Kumho Petrochemical, South Korea
- Indo Tambangraya Megah - Indonesia
- Attock Cement Pakistan Limited
- Sinarmas Energy and Mining - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Bhushan Steel Limited - India
- India Bulls Power Limited - India
- TeaM Sual Corporation - Philippines
- South Luzon Thermal Energy Corporation
- Global Business Power Corporation, Philippines
- Videocon Industries ltd - India
- Mintek Dendrill Indonesia
- SN Aboitiz Power Inc, Philippines
- Power Finance Corporation Ltd., India
- Cigading International Bulk Terminal - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Chamber of Mines of South Africa
- Goldman Sachs - Singapore
- ASAPP Information Group - India
- Mercuria Energy - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Sarangani Energy Corporation, Philippines
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