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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, 01 November 12
KOMIPO LOOKING FOR 440,000 MT OF 4600 KCAL/KG NAR COAL FOR BORYEONG POWER PLANT
COALspot.com - Korea Midland Power Co. Ltd.(KOMIPO) is inviting bids from coal producers, marketing companies or traders to supply of 440,000 Metric ...
Thursday, 01 November 12
CAPESIZE RATES FALL, DRY BULK MARKET RETREATS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
It was another lackluster session yesterday in the dry bulk markets, with the industry's benchmark, the BDI (Baltic Dry Index) retreating by 1.63 p ...
Thursday, 01 November 12
HANDY : WCI-CHINA RATES ARE AT AROUND USD 5,000 AND ECI-CHINA AROUND USD 4000 - FEARNLEYS AS
Handy
The Atlantic market remains quiet due to a lack of cargoes and an increased supply of ships. Rates from the Continent to east Med were around ...
Tuesday, 30 October 12
COAL PRODUCTION TO RISE BY FIVE PERCENT IN 2013 - TEMPO INTERACTIVE
TEMPO Interactive reported that, Indonesian Coal Mining Association (APBI) chairman Bob Kamandanu has estimated that Indonesian coal production will ...
Tuesday, 30 October 12
NEW BUILDING ORDERING ACTIVITY KEEPS ON RETREATING - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
Ship owners have refrained from placing any new orders of vessels during the course of the past few days, according to shipbroker reports. According ...
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Showing 4521 to 4525 news of total 6871 |
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- CNBM International Corporation - China
- AsiaOL BioFuels Corp., Philippines
- Carbofer General Trading SA - India
- Ministry of Finance - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Medco Energi Mining Internasional
- Essar Steel Hazira Ltd - India
- Gujarat Sidhee Cement - India
- PowerSource Philippines DevCo
- Petron Corporation, Philippines
- Bangladesh Power Developement Board
- Bulk Trading Sa - Switzerland
- Energy Development Corp, Philippines
- Kumho Petrochemical, South Korea
- Directorate General of MIneral and Coal - Indonesia
- Global Business Power Corporation, Philippines
- Eastern Energy - Thailand
- Cement Manufacturers Association - India
- Metalloyd Limited - United Kingdom
- Global Green Power PLC Corporation, Philippines
- Singapore Mercantile Exchange
- IHS Mccloskey Coal Group - USA
- Renaissance Capital - South Africa
- Malabar Cements Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- European Bulk Services B.V. - Netherlands
- Mjunction Services Limited - India
- Heidelberg Cement - Germany
- Straits Asia Resources Limited - Singapore
- Parliament of New Zealand
- Africa Commodities Group - South Africa
- Ministry of Transport, Egypt
- The University of Queensland
- Holcim Trading Pte Ltd - Singapore
- Siam City Cement - Thailand
- ICICI Bank Limited - India
- Indian Energy Exchange, India
- Kaltim Prima Coal - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Romanian Commodities Exchange
- Independent Power Producers Association of India
- Gujarat Mineral Development Corp Ltd - India
- Baramulti Group, Indonesia
- Sakthi Sugars Limited - India
- Dalmia Cement Bharat India
- MS Steel International - UAE
- San Jose City I Power Corp, Philippines
- The Treasury - Australian Government
- Borneo Indobara - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Agrawal Coal Company - India
- Coastal Gujarat Power Limited - India
- Vedanta Resources Plc - India
- Semirara Mining and Power Corporation, Philippines
- Indogreen Group - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Economic Council, Georgia
- Electricity Generating Authority of Thailand
- Gujarat Electricity Regulatory Commission - India
- Australian Coal Association
- Orica Australia Pty. Ltd.
- London Commodity Brokers - England
- Jorong Barutama Greston.PT - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Kohat Cement Company Ltd. - Pakistan
- TNB Fuel Sdn Bhd - Malaysia
- Minerals Council of Australia
- Bhoruka Overseas - Indonesia
- Simpson Spence & Young - Indonesia
- Intertek Mineral Services - Indonesia
- Kideco Jaya Agung - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Alfred C Toepfer International GmbH - Germany
- VISA Power Limited - India
- Energy Link Ltd, New Zealand
- Siam City Cement PLC, Thailand
- Deloitte Consulting - India
- Mercator Lines Limited - India
- The State Trading Corporation of India Ltd
- OPG Power Generation Pvt Ltd - India
- Riau Bara Harum - Indonesia
- Port Waratah Coal Services - Australia
- Goldman Sachs - Singapore
- TeaM Sual Corporation - Philippines
- Karaikal Port Pvt Ltd - India
- Interocean Group of Companies - India
- Kapuas Tunggal Persada - Indonesia
- SMC Global Power, Philippines
- Toyota Tsusho Corporation, Japan
- McConnell Dowell - Australia
- Formosa Plastics Group - Taiwan
- Rashtriya Ispat Nigam Limited - India
- Ministry of Mines - Canada
- Savvy Resources Ltd - HongKong
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Bayan Resources Tbk. - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Bukit Baiduri Energy - Indonesia
- Parry Sugars Refinery, India
- Banpu Public Company Limited - Thailand
- Wilmar Investment Holdings
- Indo Tambangraya Megah - Indonesia
- Samtan Co., Ltd - South Korea
- Larsen & Toubro Limited - India
- Meenaskhi Energy Private Limited - India
- Timah Investasi Mineral - Indoneisa
- Miang Besar Coal Terminal - Indonesia
- Latin American Coal - Colombia
- Central Java Power - Indonesia
- Rio Tinto Coal - Australia
- Vijayanagar Sugar Pvt Ltd - India
- South Luzon Thermal Energy Corporation
- Meralco Power Generation, Philippines
- Chamber of Mines of South Africa
- Oldendorff Carriers - Singapore
- Central Electricity Authority - India
- Attock Cement Pakistan Limited
- Chettinad Cement Corporation Ltd - India
- Bharathi Cement Corporation - India
- Commonwealth Bank - Australia
- Manunggal Multi Energi - Indonesia
- Mintek Dendrill Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- IEA Clean Coal Centre - UK
- Lanco Infratech Ltd - India
- Planning Commission, India
- Indian Oil Corporation Limited
- Tamil Nadu electricity Board
- Ind-Barath Power Infra Limited - India
- Coalindo Energy - Indonesia
- Bhatia International Limited - India
- Tata Chemicals Ltd - India
- Wood Mackenzie - Singapore
- Anglo American - United Kingdom
- India Bulls Power Limited - India
- Iligan Light & Power Inc, Philippines
- Australian Commodity Traders Exchange
- Kartika Selabumi Mining - Indonesia
- Altura Mining Limited, Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Videocon Industries ltd - India
- Madhucon Powers Ltd - India
- Indonesian Coal Mining Association
- Electricity Authority, New Zealand
- PTC India Limited - India
- Indika Energy - Indonesia
- Sree Jayajothi Cements Limited - India
- Grasim Industreis Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Directorate Of Revenue Intelligence - India
- Asmin Koalindo Tuhup - Indonesia
- Aboitiz Power Corporation - Philippines
- Antam Resourcindo - Indonesia
- SN Aboitiz Power Inc, Philippines
- Globalindo Alam Lestari - Indonesia
- New Zealand Coal & Carbon
- Thiess Contractors Indonesia
- ASAPP Information Group - India
- CIMB Investment Bank - Malaysia
- Star Paper Mills Limited - India
- Posco Energy - South Korea
- Trasteel International SA, Italy
- Orica Mining Services - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Salva Resources Pvt Ltd - India
- Makarim & Taira - Indonesia
- LBH Netherlands Bv - Netherlands
- Karbindo Abesyapradhi - Indoneisa
- Merrill Lynch Commodities Europe
- SMG Consultants - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Mercuria Energy - Indonesia
- Power Finance Corporation Ltd., India
- GVK Power & Infra Limited - India
- Edison Trading Spa - Italy
- Ambuja Cements Ltd - India
- Semirara Mining Corp, Philippines
- Thai Mozambique Logistica
- Kepco SPC Power Corporation, Philippines
- Bukit Makmur.PT - Indonesia
- Sojitz Corporation - Japan
- Marubeni Corporation - India
- Vizag Seaport Private Limited - India
- Kobexindo Tractors - Indoneisa
- Sindya Power Generating Company Private Ltd
- Standard Chartered Bank - UAE
- Pendopo Energi Batubara - Indonesia
- Aditya Birla Group - India
- White Energy Company Limited
- International Coal Ventures Pvt Ltd - India
- Therma Luzon, Inc, Philippines
- Cigading International Bulk Terminal - Indonesia
- Bhushan Steel Limited - India
- Jaiprakash Power Ventures ltd
- Maheswari Brothers Coal Limited - India
- Xindia Steels Limited - India
- Coal and Oil Company - UAE
- Bank of Tokyo Mitsubishi UFJ Ltd
- Global Coal Blending Company Limited - Australia
- Georgia Ports Authority, United States
- Eastern Coal Council - USA
- Sarangani Energy Corporation, Philippines
- Uttam Galva Steels Limited - India
- GMR Energy Limited - India
- GAC Shipping (India) Pvt Ltd
- Pipit Mutiara Jaya. PT, Indonesia
- Jindal Steel & Power Ltd - India
- Price Waterhouse Coopers - Russia
- Sical Logistics Limited - India
- Barasentosa Lestari - Indonesia
- Binh Thuan Hamico - Vietnam
- PNOC Exploration Corporation - Philippines
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