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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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Friday, 16 November 12
HANDY : IRON ORE WAS QUIET AND RATES FROM INDIA TO CHINA AROUND USD 5500
Handy
The Atlantic was weak with more supply of ships. Rates from Continent/ Feast at USD 9000 and from USG/China at USD 15k. The Pacific market re ...
Wednesday, 14 November 12
AUSTRALIAN NEWCASTLE PORT HAS LOADED 11.14 PERCENT MORE COAL W-W
COALspot.com - Newcastle port in Australia has loaded 3,100,686 MT of thermal and coking coal for week ended – 0700 hours 12 November 2012, Ne ...
Tuesday, 13 November 12
INITIAL COAL PRODUCTION AT KATINGAN RIA ON TRACK FOR 2013 FOLLOWING GRANTING OF 'IN PRINCIPLE' FORESTRY PERMIT, INDONESIA
Realm Resources Ltd (“Realm” or the “Company” - ASX: RRP) has announced that its application to upgrade its exploration fore ...
Tuesday, 13 November 12
BULK PORTS & TECHNOLOGY ASIA 2013
Press Release - TOC Events are pleased to announce a new addition to our global portfolio with the launch of the inaugural Bulk Ports & Technolo ...
Monday, 12 November 12
THE ESTABLISHMENT OF NORTH KALIMANTAN AS A NEW PROVINCE WILL NOT AFFECT THE LOCAL MINING COMPANIES
The government of Indonesia has ensured that the establishment of North Kalimantan as a new province will not affect the local mining companies ...
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- Bahari Cakrawala Sebuku - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Sree Jayajothi Cements Limited - India
- GMR Energy Limited - India
- Heidelberg Cement - Germany
- SMG Consultants - Indonesia
- Central Java Power - Indonesia
- Sarangani Energy Corporation, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- McConnell Dowell - Australia
- Marubeni Corporation - India
- Australian Coal Association
- Binh Thuan Hamico - Vietnam
- Central Electricity Authority - India
- MS Steel International - UAE
- Uttam Galva Steels Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Indika Energy - Indonesia
- Barasentosa Lestari - Indonesia
- ICICI Bank Limited - India
- Tata Chemicals Ltd - India
- Coastal Gujarat Power Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Mercuria Energy - Indonesia
- The University of Queensland
- Interocean Group of Companies - India
- Malabar Cements Ltd - India
- Georgia Ports Authority, United States
- London Commodity Brokers - England
- Therma Luzon, Inc, Philippines
- Price Waterhouse Coopers - Russia
- Essar Steel Hazira Ltd - India
- Star Paper Mills Limited - India
- Bayan Resources Tbk. - Indonesia
- CNBM International Corporation - China
- Ministry of Transport, Egypt
- Meralco Power Generation, Philippines
- Sinarmas Energy and Mining - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Oldendorff Carriers - Singapore
- Directorate General of MIneral and Coal - Indonesia
- Kobexindo Tractors - Indoneisa
- Bukit Makmur.PT - Indonesia
- Bhushan Steel Limited - India
- Savvy Resources Ltd - HongKong
- Coal and Oil Company - UAE
- Larsen & Toubro Limited - India
- Ambuja Cements Ltd - India
- Videocon Industries ltd - India
- Toyota Tsusho Corporation, Japan
- PNOC Exploration Corporation - Philippines
- Leighton Contractors Pty Ltd - Australia
- Vizag Seaport Private Limited - India
- Anglo American - United Kingdom
- Rashtriya Ispat Nigam Limited - India
- Timah Investasi Mineral - Indoneisa
- Medco Energi Mining Internasional
- Vedanta Resources Plc - India
- Eastern Coal Council - USA
- SN Aboitiz Power Inc, Philippines
- Semirara Mining and Power Corporation, Philippines
- Siam City Cement PLC, Thailand
- Singapore Mercantile Exchange
- Global Business Power Corporation, Philippines
- Indo Tambangraya Megah - Indonesia
- Standard Chartered Bank - UAE
- Gujarat Sidhee Cement - India
- Planning Commission, India
- Directorate Of Revenue Intelligence - India
- Indian Oil Corporation Limited
- Baramulti Group, Indonesia
- Global Coal Blending Company Limited - Australia
- PetroVietnam Power Coal Import and Supply Company
- GVK Power & Infra Limited - India
- Goldman Sachs - Singapore
- Ind-Barath Power Infra Limited - India
- Carbofer General Trading SA - India
- Holcim Trading Pte Ltd - Singapore
- Maharashtra Electricity Regulatory Commission - India
- Posco Energy - South Korea
- Port Waratah Coal Services - Australia
- Aboitiz Power Corporation - Philippines
- Kohat Cement Company Ltd. - Pakistan
- LBH Netherlands Bv - Netherlands
- Bulk Trading Sa - Switzerland
- VISA Power Limited - India
- Banpu Public Company Limited - Thailand
- Bangladesh Power Developement Board
- Electricity Authority, New Zealand
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Pendopo Energi Batubara - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Parry Sugars Refinery, India
- Coalindo Energy - Indonesia
- CIMB Investment Bank - Malaysia
- Attock Cement Pakistan Limited
- Thiess Contractors Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Global Green Power PLC Corporation, Philippines
- Chettinad Cement Corporation Ltd - India
- Indogreen Group - Indonesia
- Kumho Petrochemical, South Korea
- AsiaOL BioFuels Corp., Philippines
- Globalindo Alam Lestari - Indonesia
- Latin American Coal - Colombia
- Sojitz Corporation - Japan
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Karaikal Port Pvt Ltd - India
- Kaltim Prima Coal - Indonesia
- Semirara Mining Corp, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Manunggal Multi Energi - Indonesia
- Maheswari Brothers Coal Limited - India
- New Zealand Coal & Carbon
- Offshore Bulk Terminal Pte Ltd, Singapore
- Makarim & Taira - Indonesia
- Simpson Spence & Young - Indonesia
- Ministry of Mines - Canada
- Xindia Steels Limited - India
- Chamber of Mines of South Africa
- Energy Development Corp, Philippines
- Minerals Council of Australia
- Sical Logistics Limited - India
- Eastern Energy - Thailand
- Africa Commodities Group - South Africa
- Trasteel International SA, Italy
- Madhucon Powers Ltd - India
- Indonesian Coal Mining Association
- Mjunction Services Limited - India
- TeaM Sual Corporation - Philippines
- Renaissance Capital - South Africa
- ASAPP Information Group - India
- PowerSource Philippines DevCo
- Merrill Lynch Commodities Europe
- IEA Clean Coal Centre - UK
- Dalmia Cement Bharat India
- Borneo Indobara - Indonesia
- PTC India Limited - India
- The State Trading Corporation of India Ltd
- Intertek Mineral Services - Indonesia
- Kepco SPC Power Corporation, Philippines
- San Jose City I Power Corp, Philippines
- Jindal Steel & Power Ltd - India
- Ministry of Finance - Indonesia
- Salva Resources Pvt Ltd - India
- Jaiprakash Power Ventures ltd
- Indian Energy Exchange, India
- GAC Shipping (India) Pvt Ltd
- Samtan Co., Ltd - South Korea
- Gujarat Mineral Development Corp Ltd - India
- Deloitte Consulting - India
- Miang Besar Coal Terminal - Indonesia
- Energy Link Ltd, New Zealand
- Rio Tinto Coal - Australia
- South Luzon Thermal Energy Corporation
- Siam City Cement - Thailand
- Antam Resourcindo - Indonesia
- Tamil Nadu electricity Board
- Cigading International Bulk Terminal - Indonesia
- Grasim Industreis Ltd - India
- Petron Corporation, Philippines
- Kideco Jaya Agung - Indonesia
- Orica Australia Pty. Ltd.
- Thai Mozambique Logistica
- Bharathi Cement Corporation - India
- Meenaskhi Energy Private Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Ceylon Electricity Board - Sri Lanka
- Kapuas Tunggal Persada - Indonesia
- Orica Mining Services - Indonesia
- Wilmar Investment Holdings
- Neyveli Lignite Corporation Ltd, - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Sindya Power Generating Company Private Ltd
- Pipit Mutiara Jaya. PT, Indonesia
- Power Finance Corporation Ltd., India
- SMC Global Power, Philippines
- Romanian Commodities Exchange
- Bhatia International Limited - India
- Iligan Light & Power Inc, Philippines
- Australian Commodity Traders Exchange
- OPG Power Generation Pvt Ltd - India
- Kartika Selabumi Mining - Indonesia
- Wood Mackenzie - Singapore
- Bukit Baiduri Energy - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- European Bulk Services B.V. - Netherlands
- Sakthi Sugars Limited - India
- India Bulls Power Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Riau Bara Harum - Indonesia
- Metalloyd Limited - United Kingdom
- Commonwealth Bank - Australia
- Independent Power Producers Association of India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Alfred C Toepfer International GmbH - Germany
- Edison Trading Spa - Italy
- Lanco Infratech Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Straits Asia Resources Limited - Singapore
- Cement Manufacturers Association - India
- Parliament of New Zealand
- Aditya Birla Group - India
- Bhoruka Overseas - Indonesia
- International Coal Ventures Pvt Ltd - India
- Mintek Dendrill Indonesia
- Billiton Holdings Pty Ltd - Australia
- White Energy Company Limited
- Electricity Generating Authority of Thailand
- Altura Mining Limited, Indonesia
- The Treasury - Australian Government
- IHS Mccloskey Coal Group - USA
- Formosa Plastics Group - Taiwan
- Economic Council, Georgia
- Agrawal Coal Company - India
- Mercator Lines Limited - India
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