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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, 09 December 12
LOW DEMAND PUSHES CHARTER RATES TOWARDS DOWN - VISTAAR
COALspot.com - The freight market has softened and BDI, The Baltic Dry Index, a measure of shipping costs for dry bulk goods, plunged below 10 ...
Friday, 07 December 12
SHIPPING INDUSTRY LOOKING ON YET ANOTHER TOUGH YEAR AS WE APPROACH 2013 - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
With shipping finance "on the ropes" as traditional lenders appear to be cutting their losses and tonnage oversupply still the most import ...
Thursday, 06 December 12
PANAMAX : THE POSITIVE VIBES IN THE ATLANTIC REMAINS - FEARNLEYS AS
Handy
The Atlantic market is still depressed with dearth of cargoes and more ships. The trips from Continent to Feast fixed around USD 12k. Trips f ...
Thursday, 06 December 12
STRONG CHINESE DEMAND FOR DRY BULK COMMODITIES EXPECTED FOR 2013 - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
A new analysis from BIMCO released yesterday suggests that 2013 is expected to be a stronger year in terms of China's "hunger" for commod ...
Tuesday, 04 December 12
JATENERGY SIGNS MOU FOR INDONESIAN COAL ASSET
COALspot.com - Jatenergy Limited has announced that its fully-owned Indonesian subsidiary, PT Barata Energy (BE), has signed an exclusive, non-bindi ...
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- Vizag Seaport Private Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Energy Link Ltd, New Zealand
- Africa Commodities Group - South Africa
- Romanian Commodities Exchange
- London Commodity Brokers - England
- Medco Energi Mining Internasional
- Maharashtra Electricity Regulatory Commission - India
- Madhucon Powers Ltd - India
- Metalloyd Limited - United Kingdom
- Makarim & Taira - Indonesia
- Eastern Coal Council - USA
- Salva Resources Pvt Ltd - India
- GAC Shipping (India) Pvt Ltd
- Kohat Cement Company Ltd. - Pakistan
- Directorate Of Revenue Intelligence - India
- Wood Mackenzie - Singapore
- Alfred C Toepfer International GmbH - Germany
- Holcim Trading Pte Ltd - Singapore
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Banpu Public Company Limited - Thailand
- Tata Chemicals Ltd - India
- Latin American Coal - Colombia
- PetroVietnam Power Coal Import and Supply Company
- Cigading International Bulk Terminal - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Commonwealth Bank - Australia
- TeaM Sual Corporation - Philippines
- Malabar Cements Ltd - India
- Iligan Light & Power Inc, Philippines
- Barasentosa Lestari - Indonesia
- Gujarat Sidhee Cement - India
- OPG Power Generation Pvt Ltd - India
- Toyota Tsusho Corporation, Japan
- The University of Queensland
- Interocean Group of Companies - India
- Oldendorff Carriers - Singapore
- Star Paper Mills Limited - India
- Kartika Selabumi Mining - Indonesia
- Kepco SPC Power Corporation, Philippines
- Coalindo Energy - Indonesia
- Australian Commodity Traders Exchange
- Bhoruka Overseas - Indonesia
- Xindia Steels Limited - India
- Aditya Birla Group - India
- Manunggal Multi Energi - Indonesia
- Simpson Spence & Young - Indonesia
- GMR Energy Limited - India
- South Luzon Thermal Energy Corporation
- Siam City Cement - Thailand
- Kalimantan Lumbung Energi - Indonesia
- Electricity Authority, New Zealand
- Mjunction Services Limited - India
- Orica Australia Pty. Ltd.
- Minerals Council of Australia
- Leighton Contractors Pty Ltd - Australia
- Savvy Resources Ltd - HongKong
- Ambuja Cements Ltd - India
- Sakthi Sugars Limited - India
- Essar Steel Hazira Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- GVK Power & Infra Limited - India
- Indian Energy Exchange, India
- AsiaOL BioFuels Corp., Philippines
- Kaltim Prima Coal - Indonesia
- Sojitz Corporation - Japan
- Thai Mozambique Logistica
- Chettinad Cement Corporation Ltd - India
- Videocon Industries ltd - India
- PowerSource Philippines DevCo
- Borneo Indobara - Indonesia
- Parliament of New Zealand
- Bharathi Cement Corporation - India
- Eastern Energy - Thailand
- Carbofer General Trading SA - India
- Kumho Petrochemical, South Korea
- Renaissance Capital - South Africa
- Ministry of Transport, Egypt
- Maheswari Brothers Coal Limited - India
- Intertek Mineral Services - Indonesia
- Billiton Holdings Pty Ltd - Australia
- SMG Consultants - Indonesia
- Cement Manufacturers Association - India
- GN Power Mariveles Coal Plant, Philippines
- Trasteel International SA, Italy
- PTC India Limited - India
- Semirara Mining Corp, Philippines
- Standard Chartered Bank - UAE
- Bayan Resources Tbk. - Indonesia
- San Jose City I Power Corp, Philippines
- International Coal Ventures Pvt Ltd - India
- ICICI Bank Limited - India
- Thiess Contractors Indonesia
- Aboitiz Power Corporation - Philippines
- Bulk Trading Sa - Switzerland
- Georgia Ports Authority, United States
- Agrawal Coal Company - India
- Singapore Mercantile Exchange
- Karaikal Port Pvt Ltd - India
- ASAPP Information Group - India
- Semirara Mining and Power Corporation, Philippines
- Gujarat Electricity Regulatory Commission - India
- Asmin Koalindo Tuhup - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Meenaskhi Energy Private Limited - India
- Energy Development Corp, Philippines
- New Zealand Coal & Carbon
- Directorate General of MIneral and Coal - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Therma Luzon, Inc, Philippines
- Riau Bara Harum - Indonesia
- Mercuria Energy - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Parry Sugars Refinery, India
- Merrill Lynch Commodities Europe
- Indo Tambangraya Megah - Indonesia
- Formosa Plastics Group - Taiwan
- Bukit Makmur.PT - Indonesia
- Rio Tinto Coal - Australia
- India Bulls Power Limited - India
- Lanco Infratech Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Sical Logistics Limited - India
- Straits Asia Resources Limited - Singapore
- Bank of Tokyo Mitsubishi UFJ Ltd
- Global Coal Blending Company Limited - Australia
- Chamber of Mines of South Africa
- Wilmar Investment Holdings
- Ind-Barath Power Infra Limited - India
- Globalindo Alam Lestari - Indonesia
- Vedanta Resources Plc - India
- Central Java Power - Indonesia
- Port Waratah Coal Services - Australia
- Coal and Oil Company - UAE
- Global Business Power Corporation, Philippines
- Bukit Baiduri Energy - Indonesia
- Indian Oil Corporation Limited
- Heidelberg Cement - Germany
- Bhatia International Limited - India
- Price Waterhouse Coopers - Russia
- CIMB Investment Bank - Malaysia
- Edison Trading Spa - Italy
- Ministry of Mines - Canada
- Marubeni Corporation - India
- IEA Clean Coal Centre - UK
- Anglo American - United Kingdom
- Dalmia Cement Bharat India
- Indogreen Group - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Mintek Dendrill Indonesia
- Kideco Jaya Agung - Indonesia
- Sindya Power Generating Company Private Ltd
- SN Aboitiz Power Inc, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Kobexindo Tractors - Indoneisa
- Samtan Co., Ltd - South Korea
- Mercator Lines Limited - India
- European Bulk Services B.V. - Netherlands
- Grasim Industreis Ltd - India
- Central Electricity Authority - India
- Altura Mining Limited, Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Economic Council, Georgia
- Antam Resourcindo - Indonesia
- The State Trading Corporation of India Ltd
- McConnell Dowell - Australia
- Independent Power Producers Association of India
- Global Green Power PLC Corporation, Philippines
- Bangladesh Power Developement Board
- Power Finance Corporation Ltd., India
- LBH Netherlands Bv - Netherlands
- VISA Power Limited - India
- Sarangani Energy Corporation, Philippines
- The Treasury - Australian Government
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Binh Thuan Hamico - Vietnam
- IHS Mccloskey Coal Group - USA
- PNOC Exploration Corporation - Philippines
- Indonesian Coal Mining Association
- Australian Coal Association
- Vijayanagar Sugar Pvt Ltd - India
- MS Steel International - UAE
- White Energy Company Limited
- Planning Commission, India
- Gujarat Mineral Development Corp Ltd - India
- Coastal Gujarat Power Limited - India
- Baramulti Group, Indonesia
- Kapuas Tunggal Persada - Indonesia
- Pendopo Energi Batubara - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Posco Energy - South Korea
- Sinarmas Energy and Mining - Indonesia
- Larsen & Toubro Limited - India
- Meralco Power Generation, Philippines
- Tamil Nadu electricity Board
- Petron Corporation, Philippines
- Krishnapatnam Port Company Ltd. - India
- Sree Jayajothi Cements Limited - India
- Jaiprakash Power Ventures ltd
- CNBM International Corporation - China
- Bukit Asam (Persero) Tbk - Indonesia
- Ministry of Finance - Indonesia
- Orica Mining Services - Indonesia
- Uttam Galva Steels Limited - India
- Attock Cement Pakistan Limited
- Petrochimia International Co. Ltd.- Taiwan
- Electricity Generating Authority of Thailand
- Goldman Sachs - Singapore
- Bhushan Steel Limited - India
- Deloitte Consulting - India
- SMC Global Power, Philippines
- Jindal Steel & Power Ltd - India
- Timah Investasi Mineral - Indoneisa
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Siam City Cement PLC, Thailand
- Indika Energy - Indonesia
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