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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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Monday, 19 November 12
IHS MCCLOSKEY ASIA PACIFIC COAL OUTLOOK CONFERENCE 2012
With the current global oversupply of thermal coal showing no signs of abating and spot prices falling to a two-year low, concerns are growing that ...
Sunday, 18 November 12
INDONESIAN SUB BITUMINOUS COAL SWAPS FOR JANUARY 2013 DELIVERY GAINS 1.29 PERCENT WOW
COALspot.com - Sub-Bit Indonesia coal swaps (FOB ) for January 2013 delivery gains 1.29 percent WoW and 0.25 percent DoD on Friday, 16 Novembe ...
Saturday, 17 November 12
THE SUPRAMAX FREIGHT RATES FROM INDONESIA TO INDIA ARE EXPECTED TO BE UP NEXT WEEK - VISTAAR
COALspot.com - This week market sentiments ended positive with all the segments ending higher except for handy size which was almost at same levels ...
Saturday, 17 November 12
RECORD DEMOLITION ACTIVITY SEEKS TO CURB TONNAGE OVERSUPPLY - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
This year will prove to be another record-breaker in terms of scrapping of older vessels across all shipping segments, as the equally feverish pace ...
Friday, 16 November 12
SHIP OWNERS KEEP ON INVESTING IN SECOND HAND VESSELS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
Priced attractively, modern and with prompt delivery dates, second hand vessels are proving to be rather popular among cash-rich ship owners these d ...
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- Sree Jayajothi Cements Limited - India
- Intertek Mineral Services - Indonesia
- Barasentosa Lestari - Indonesia
- White Energy Company Limited
- GAC Shipping (India) Pvt Ltd
- Timah Investasi Mineral - Indoneisa
- Wilmar Investment Holdings
- The University of Queensland
- Therma Luzon, Inc, Philippines
- Bhoruka Overseas - Indonesia
- San Jose City I Power Corp, Philippines
- Electricity Generating Authority of Thailand
- Sakthi Sugars Limited - India
- Power Finance Corporation Ltd., India
- Global Business Power Corporation, Philippines
- Mercuria Energy - Indonesia
- Vizag Seaport Private Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Indo Tambangraya Megah - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Lanco Infratech Ltd - India
- PowerSource Philippines DevCo
- Anglo American - United Kingdom
- CIMB Investment Bank - Malaysia
- Bhushan Steel Limited - India
- Meralco Power Generation, Philippines
- TeaM Sual Corporation - Philippines
- Parliament of New Zealand
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Deloitte Consulting - India
- Meenaskhi Energy Private Limited - India
- International Coal Ventures Pvt Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Medco Energi Mining Internasional
- Georgia Ports Authority, United States
- Grasim Industreis Ltd - India
- European Bulk Services B.V. - Netherlands
- Samtan Co., Ltd - South Korea
- Chettinad Cement Corporation Ltd - India
- Karaikal Port Pvt Ltd - India
- Vedanta Resources Plc - India
- Banpu Public Company Limited - Thailand
- Petron Corporation, Philippines
- Latin American Coal - Colombia
- Bukit Baiduri Energy - Indonesia
- Indonesian Coal Mining Association
- Manunggal Multi Energi - Indonesia
- Ministry of Finance - Indonesia
- Indian Oil Corporation Limited
- Maharashtra Electricity Regulatory Commission - India
- PNOC Exploration Corporation - Philippines
- Global Coal Blending Company Limited - Australia
- Indika Energy - Indonesia
- Sojitz Corporation - Japan
- Larsen & Toubro Limited - India
- Directorate Of Revenue Intelligence - India
- Kumho Petrochemical, South Korea
- Kaltim Prima Coal - Indonesia
- Gujarat Sidhee Cement - India
- Ambuja Cements Ltd - India
- SMG Consultants - Indonesia
- Port Waratah Coal Services - Australia
- Uttam Galva Steels Limited - India
- Australian Commodity Traders Exchange
- Ind-Barath Power Infra Limited - India
- Dalmia Cement Bharat India
- Renaissance Capital - South Africa
- Cigading International Bulk Terminal - Indonesia
- Standard Chartered Bank - UAE
- Ministry of Transport, Egypt
- Alfred C Toepfer International GmbH - Germany
- Sinarmas Energy and Mining - Indonesia
- IEA Clean Coal Centre - UK
- Sarangani Energy Corporation, Philippines
- Wood Mackenzie - Singapore
- Siam City Cement - Thailand
- Coastal Gujarat Power Limited - India
- Bhatia International Limited - India
- Trasteel International SA, Italy
- Thai Mozambique Logistica
- Australian Coal Association
- VISA Power Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- New Zealand Coal & Carbon
- Metalloyd Limited - United Kingdom
- Kideco Jaya Agung - Indonesia
- Savvy Resources Ltd - HongKong
- Global Green Power PLC Corporation, Philippines
- Karbindo Abesyapradhi - Indoneisa
- CNBM International Corporation - China
- GN Power Mariveles Coal Plant, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Altura Mining Limited, Indonesia
- Independent Power Producers Association of India
- Gujarat Electricity Regulatory Commission - India
- Bulk Trading Sa - Switzerland
- Binh Thuan Hamico - Vietnam
- Africa Commodities Group - South Africa
- Eastern Energy - Thailand
- Bukit Asam (Persero) Tbk - Indonesia
- Kepco SPC Power Corporation, Philippines
- Mercator Lines Limited - India
- Commonwealth Bank - Australia
- Jaiprakash Power Ventures ltd
- Toyota Tsusho Corporation, Japan
- Neyveli Lignite Corporation Ltd, - India
- PetroVietnam Power Coal Import and Supply Company
- Gujarat Mineral Development Corp Ltd - India
- Madhucon Powers Ltd - India
- Central Java Power - Indonesia
- Formosa Plastics Group - Taiwan
- Heidelberg Cement - Germany
- Marubeni Corporation - India
- Posco Energy - South Korea
- Jorong Barutama Greston.PT - Indonesia
- Straits Asia Resources Limited - Singapore
- Coal and Oil Company - UAE
- Riau Bara Harum - Indonesia
- Eastern Coal Council - USA
- OPG Power Generation Pvt Ltd - India
- Chamber of Mines of South Africa
- Essar Steel Hazira Ltd - India
- Bayan Resources Tbk. - Indonesia
- Salva Resources Pvt Ltd - India
- Energy Link Ltd, New Zealand
- Bharathi Cement Corporation - India
- IHS Mccloskey Coal Group - USA
- Bahari Cakrawala Sebuku - Indonesia
- South Luzon Thermal Energy Corporation
- SMC Global Power, Philippines
- India Bulls Power Limited - India
- Holcim Trading Pte Ltd - Singapore
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Orica Australia Pty. Ltd.
- Interocean Group of Companies - India
- ICICI Bank Limited - India
- The Treasury - Australian Government
- Electricity Authority, New Zealand
- Krishnapatnam Port Company Ltd. - India
- Rashtriya Ispat Nigam Limited - India
- Kartika Selabumi Mining - Indonesia
- Tamil Nadu electricity Board
- Siam City Cement PLC, Thailand
- Borneo Indobara - Indonesia
- Pendopo Energi Batubara - Indonesia
- Bangladesh Power Developement Board
- Edison Trading Spa - Italy
- Leighton Contractors Pty Ltd - Australia
- Minerals Council of Australia
- Economic Council, Georgia
- Coalindo Energy - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Simpson Spence & Young - Indonesia
- Indogreen Group - Indonesia
- Tata Chemicals Ltd - India
- Goldman Sachs - Singapore
- London Commodity Brokers - England
- Singapore Mercantile Exchange
- Globalindo Alam Lestari - Indonesia
- SN Aboitiz Power Inc, Philippines
- Cement Manufacturers Association - India
- Oldendorff Carriers - Singapore
- GVK Power & Infra Limited - India
- Makarim & Taira - Indonesia
- Carbofer General Trading SA - India
- Sical Logistics Limited - India
- Price Waterhouse Coopers - Russia
- Ceylon Electricity Board - Sri Lanka
- Asmin Koalindo Tuhup - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Mjunction Services Limited - India
- GMR Energy Limited - India
- Aditya Birla Group - India
- Iligan Light & Power Inc, Philippines
- Semirara Mining and Power Corporation, Philippines
- Antam Resourcindo - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Romanian Commodities Exchange
- Energy Development Corp, Philippines
- Bukit Makmur.PT - Indonesia
- The State Trading Corporation of India Ltd
- ASAPP Information Group - India
- Sindya Power Generating Company Private Ltd
- Ministry of Mines - Canada
- Merrill Lynch Commodities Europe
- Parry Sugars Refinery, India
- Pipit Mutiara Jaya. PT, Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- LBH Netherlands Bv - Netherlands
- Central Electricity Authority - India
- Indian Energy Exchange, India
- Rio Tinto Coal - Australia
- Star Paper Mills Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Directorate General of MIneral and Coal - Indonesia
- Xindia Steels Limited - India
- Thiess Contractors Indonesia
- Orica Mining Services - Indonesia
- Maheswari Brothers Coal Limited - India
- Aboitiz Power Corporation - Philippines
- Attock Cement Pakistan Limited
- Baramulti Group, Indonesia
- Billiton Holdings Pty Ltd - Australia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Agrawal Coal Company - India
- McConnell Dowell - Australia
- AsiaOL BioFuels Corp., Philippines
- Semirara Mining Corp, Philippines
- MS Steel International - UAE
- Kobexindo Tractors - Indoneisa
- Malabar Cements Ltd - India
- Videocon Industries ltd - India
- Mintek Dendrill Indonesia
- Jindal Steel & Power Ltd - India
- Planning Commission, India
- PTC India Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
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