Production and maintenance to drive the expanded industry

Mining investment will collapse by 40 per cent over the next four years, but the sector will grow in absolute terms as a result of greater production and maintenance requirements, according to a new report.

Industry analyst BIS Shrapnel said the mining sector will also claim a greater share of the national economy in their Mining in Australia 2014 to 2029 report.

However, “economic headwinds” will present a series of challenges to the industry as it shifts out of the investment and construction phase, including a high Australian dollar, weak growth in export demand, and relatively high costs.

Federal and state governments will also face increased pressure in the face of the challenges of a weak economy, with expectations to facilitate growth through infrastructure spending.

The report said mining investment peaked at $93.1 billion in 2013/14, but this will drop by 40 per cent while production surges ahead by 33 per cent over the same four year period, along with the corresponding maintenance and export growth.

Already mining production has grown 9.4 per cent to $164 billion, with the significant investments of the boom and rapid expansion, including major LNG projects, pushing future production growth and lifting the industry’s share of the GDP by 12 per cent.

BIS Shrapnel’s Infrastructure and Mining Unit senior manager Adrian Hart said investment was only held up by the gas industry, while spending fell sharply across coal, iron ore and other commodities.

“Indeed, without oil and gas, mining investment would have fallen 25 per cent in the last financial year,” he said.

“However, the completion of a range of large gas projects on the east and west coasts will be the key driver of the long slump in investment from here.”

Exploration investment has fallen by 13.8 per cent to $6.6 billion in 2013/14, with gas contributing $4.6 billion to the total, however exploration levels are still quite high compared to historical conditions.

The key drivers for the mining industry will be production, operations and maintenance over the next five years, according to the report.

“Over the past three years, the real value of mining production has increased by 30 per cent. It now makes up 10 per cent of the national economy on this measure,” Hart said.

“Another 33 per cent growth is expected over the next five years, with the share rising to 12 per cent. In Western Australia, the value of mining production will overtake that of the entire Australian manufacturing sector during 2014/15. This is the new face of the mining boom in Australia.”

The key challenges to miners and contractors will be employment losses (forecast to drop by 20 per cent in WA over the next six years), closing operations, and the suffering prices of coal and iron ore, highlighted by report author Rubhen Jeya.

“The price of coal and iron ore – the two flagship bulk commodities which had held Australia’s exports high over the last few years – have suffered significantly over the past years, recording multi-year lows,” Jeya said.

“Miners should expect these less than ideal conditions to continue over the next few years.

“The relatively high Australian dollar does not make the situation any better.”

Jeya said that by withdrawing supply from the market through mine closures and reduced production, as well as the corresponding staff redundancies, this “natural attrition” will enhance the possibility for a turnaround on coal prices.

“Nonetheless, hard choices on operational viability need to be made. It won’t be an easy environment to navigate,” he said.

Contract mining is seeing increased pressure as a result of services being brought in-house by miners, but the report said this situation is unlikely to persist as production increases bring market recovery and increased demand for services.

Maintenance is expected to continue sustained growth, with a 7.5 per cent increase to $7 billion in 2013/14, and predictions for further increase to $9 billion by 2018/19, driven by ongoing improvements to operational efficiencies and the needs of expanded production plant and infrastructure.

Contract maintenance holds a 40 per cent share of the total, which is expected to remain steady over the next five years, rising from $2.8 billion to $3.7 billion by 2019.

Iron ore hits the dreaded $US70 a tonne mark

resizeIronoreInvestors are ditching iron ore miners as the price of the commodity tumbles to a new five-year low of $US70 a tonne.

This is the third record low in as many days for iron ore which has now shed 50 per cent of its value since the start of the year.

The week’s free fall has spelt more bad news for iron ore miners.

Fortescue Metals Group shares have fallen by 55 per cent since February and closed $2.74 yesterday, a level not seen since the global financial crisis.

BC Iron and Mt Gibson also saw double digit percentage falls and are trading at 56 cents and 38 cents respectively.

BHP Billiton and Rio Tinto were cushioned from major sell-offs because of their lower operating costs and diversified portfolios, but fell by 2 per cent yesterday.

The fresh low comes as data out of China shows the average price of new houses slumped for the sixth month in a row.

Deltec chief investment officer Atul Lele said this means that housing supply is outstripping demand which is bad news for the country’s steel sector, AFR reported.

“We believe it represents the biggest risk to the Chinese and global economy,” Lele said.

Citigroup predicts iron ore will fetch $US72 a tonne for the first quarter of 2015 and crash to lows of $US60 a tonne in the third quarter before lifting again slightly by the end of the year.

The slump in prices has already seen two iron ore operations in Australia close with fears there are more to come as break-even costs are being tested.

Western Australia’s budget is also expected to have a multi-billion hole where iron ore royalty payments used to live as a result of the falling price.

This caused Premier Colin Barnett to hit out at BHP and Rio last month, accusing them of flooding the market with new supply which has forced prices down.

Barnett said he does not want to see iron ore mining in WA to revert to a duopoloy.

“By their own admission, the major companies are pushing increasing volumes on a month to month basis into the market, very conscious that is contributing to price falls in an already depressed market and very conscious by those quotes as an example of the impact this will have on smaller iron ore producers,” the premier said.

Speaking at a conference in Sydney, Rio Tinto boss Sam Walsh said Barnett shouldn’t complain about the company’s strategy to increase production seeing as the government signed off on the plan.

“I’m not sure where Colin is coming from in that given that we’ve been very clear in our plans and our expansions are approved by government,” Walsh said.

Beyond the FTA: China still tough for Aussie companies to crack

australia-china-free-trade-deal-dataDuring the APEC meeting in Beijing, President Xi Jinping announced China will spend US$10 trillion on imports over the next five years and US$1.25 trillion in foreign investment over the next ten years. While these are very large figures, they do not amount to much of an annual increase over current volumes. Instead, they signal China’s long-term commitment to further globalisation.

The China-Australia Free Trade Agreement is a game changer in more ways than one. It improves the business outlook for Australian exporters. It also dismisses concerns that Australia’s relations with its traditional allies have alienated China and harmed economic relations.

Australian goods and services are now supported by invigorated business links to China and better access to global markets. If Australia maintains its share of Chinese total imports and outbound direct investment, China will be Australia’s major trade and investment partner for the next decade at least. Expectations are that mutual self-interest will continue to pull Australia closer to China.

From a business perspective, the pull effect has been operational during most of the mining boom. This really was a China boom, driven by the large demand from China for Australian resources.

The agreement ensures trade will increase by billions of dollars. China has been Australia’s biggest trading partner since 2009. In 2013, Australia’s two-way trade with China surpassed $150 billion.

The main winners will be Australian agriculture, service industries, resources and certain manufacturing industries. Tariff reductions across the board will create new opportunities for Australian businesses and increase their competitive advantages in the Chinese market. Chinese consumers and producers will also get better access to Australian agribusiness products, new financial services and manufacturing products.

Beyond the FTA

This new China boom will pull Australia into the Chinese business orbit, but it will take significant effort on the Australian side to break into Chinese consumer and producer markets. The much-quoted “dining boom” will require deeper integration with Chinese businesses across different industries and involve risks.

In many areas covered by the agreement, Australian businesses and their Chinese partners face a “liability of newness”. This will be particularly apparent in markets that are newly open to Australia including wealth management, insurance and private health care.

The Chinese market is highly fragmented and fiercely competitive. For example, China’s dairy supply chain is long and complex with many parties involved. To overcome supply chain constraints, agribusiness companies such as New Zealand dairy co-operative Fonterra have chosen to partner with Chinese food manufacturers.

Australian business are now investing in supply chains that stretch from the Australian countryside to Chinese consumers in second and third-tier cities. This investment requires new infrastructure at both ends to convert lower tariffs into better consumer prices. This could mean a new way of economic engagement between Australian and Chinese businesses.

Previously, Australia-China trade was characterised by large resource deals with a small number of multinational corporations. Increasingly, we will see an increasing number of smaller deals involving many more parties. These deals will require a more sophisticated understanding of the Chinese market and closer coordination with Chinese partners.

In the services sector, the ground for new markets and products has only been established by recent reforms. Xi initiated these with his deregulation agenda during the Third Plenum in November 2013. Australian providers will be among the first to trial these new policies.

If experience from previous reforms is anything to go by, early movers will reap huge benefits. However, as Chinese domestic competitors increase in number and sophistication, they will also exert pressure on Australian service providers. For example, the increasingly globalised Chinese banks are undergoing rapid reform to improve their performance and competitiveness.

Australian manufacturers will need to invest time and effort to build personal relationships and inter-organisational trust. Results from a recent Australia China Business Council survey show that on average Australian businesses spent around 12 months researching the China market before entry. Building effective personal relationships and inter-organisational trust can take much longer than that. These manufacturers will be keen to enter Chinese domestic supply chains and through their Chinese contacts gain access to global value chains.

Chinese direct investments in Australia will increasingly play a bridging role between businesses on both sides. The easing of investment approvals for Chinese private investors is important. It will enable smaller Chinese investors who are closer to their domestic consumer market to partner Australian business seeking access to consumers and supply chains. The lifting of the investment threshold to $1.1 billion for private investors will mean increasing numbers of Chinese businesses enter Australia to invest.

Free Trade Agreement means more Chinese work visas

The new Free Trade Agreement with China has raised fears of for mining safety standards, in light of new terms which will allow Chinese mine owners to bring in their own Chinese workers on temporary work visas.

Australian Mining Association chairman George Edwards told SBS he feared Chinese workers were used to lower safety standards, which would make it difficult for them to operate in an environment with higher standards.

Australasian Institute of Mining and Metallurgy CEO Michael Catchpole said workers’ skill levels should be of the standard expected in Australia.

“As far as the FTA is concerned, we would want to ensure that if miners are brought in at a technical, operational or professional level that they have the required skills and training, and that they work within the same health and safety conditions that we expect in all Australian operations,” he said.

However, Catchpole also expressed his concern about the impact of bringing in temporary workers in a period of rising levels of mining industry unemployment.

“Mining professionals in Australia are experiencing a level of unemployment that really we haven’t seen in more than a decade,” he said.

Catchpole indicated unemployment among geologists and mining engineers is more than double the national figure of 6.2 per cent.

Earlier this year it was found the unemployment level among geologists was 14.8 per cent, and in Western Australia that rate soared as high as 19.6 per cent.

Last week the WA Resources Outlook forecast a 20 per cent drop in the requirement for mining labour in the state over the next six years.

“Any moves that could further exacerbate unemployment across the professional sector would be of concern,” Catchpole said.

“As a professional services organisation we are very interested in what provisions in the FTA that assist mining service organisations to extend their business in China.”

The new Free Trade Agreement will allow Chinese workers to be brought in on infrastructure projects worth $150 million or more, far lower than the existing threshold of $2billion, according to Australian Council of Trade Unions president Ged Kearney.

“We have fears that they have lowered the threshold so low … and this could be a real problem for Australian workers,” she said.

Employment minister Eric Abetz said unemployed Australians should see the Free Trade Agreement as “a very real opportunity for them, their families, their sons and daughters, to be able to gain employment in circumstances where we now have access to the world’s largest market,” he told ABC.

When asked if Australian workers could be shut out of employment by Chinese companies specifying a requirement to speak Mandarin or Cantonese, Abetz said he could not see that being widespread, albeit a potential need for a small number of jobs.

“They would have to make out a very strong case as to why, in Australia, where we speak Australian, why the particular language skill is so vital,” he said.

Senator Abetz warned that this would not be an opportunity for Chinese companies to undercut Australian pay conditions.

“If people want to play that game then they will have the full force of the Australian law to deal with,” he said.

Chinese banking figure Li Ruogu, who is chairman and president of the Export-Import Bank of China, applauded the opening of labour freedoms to Chinese companies, but asked for labour issues to be reconsidered for greater freedom, according to The Australian.

“We know it is very difficult, but if Australia can give permission for Chinese labourers to help with infrastructure construction, then the mines and other projects we both need will be completed ­quickly, and the workers will go back to China. They won’t remain in Australia,” he said.

“Then Australia will employ local people to work in those mines and other infrastructure. That will be good for employment, and therefore beneficial for Australia.”

Li acknowledged this would be difficult to pass through the Australian parliament, and added “but Australian labour costs are too high”.

He said that in return it should be easier for Australian companies to get listings on Chinese stockmarkets, which would make it easier to raise capital for Australian projects.

LANDMARK CHINA-AUSTRALIA FREE TRADE AGREEMENT

The landmark China-Australia Free Trade Agreement (ChAFTA) will unlock substantial new benefits for Australians for years to come.

ChAFTA will add billions to the economy, create jobs and drive higher living standards for Australians.

Australian businesses will have unprecedented access to the world’s second largest economy. It greatly enhances our competitive position in key areas such as agriculture, resources and energy, manufacturing exports, services and investment.

Building on trade deals already concluded with Korea and Japan, ChAFTA forms part of a powerful trifecta of agreements with Australia’s three largest export markets that account for more than 61 per cent of our exports of goods.

More than 85 per cent of Australian goods exports will be tariff free upon entry into force, rising to 93 per cent in four years. Some of these goods are currently subject to tariffs of up to 40 per cent.

On full implementation of ChAFTA, 95 per cent of Australian goods exports to China will be tariff free.

Australian households and businesses will also reap the benefits of cheaper goods and components from China such as vehicles, household goods, electronics and clothing, placing downward pressure on the cost of living and the cost of doing business.

Significantly, tariffs will be abolished for Australia’s $13 billion dairy industry. Australia’s beef and sheep farmers will also gain from the abolition of tariffs ranging from 12-25 per cent and all tariffs on Australian horticulture will be eliminated.

Tariffs on Australian wine of 14 to 30 per cent will go within four years, while restrictive tariffs on a wide range of seafood, including abalone, rock lobster, and southern bluefin tuna will also cease within four years.

Tariffs will also be removed on a range of Australian resources and energy products, including the eight per cent tariff on aluminium oxide on the first day of the Agreement, benefitting our exports worth around $1.3 billion a year. The tariffs on coking coal will be removed on day one, with the tariff on thermal coal phasing out over two years.

Tariffs will be also eliminated on a wide range of Australian manufactured goods, including pharmaceutical products and car engines.

The Australian Government has secured the best ever market access provided to a foreign country by China on services, with enormous scope to build on an export market already worth $7 billion.

Legal services, financial services, education, telecommunications, tourism and travel, construction and engineering, health and aged care services, mining and extractive industries, manufacturing services, architecture and urban planning, as well as transport, among others, will all benefit from being able to do business in China more easily.

A key feature of ChAFTA is a built-in mechanism to allow for further liberalisation and the expansion of market access over time, including a first review mechanism within three years. This places Australia in a strong position to secure additional gains as China undergoes further economic reform into the future.

ChAFTA contains investment provisions which will boost and diversify our bilateral investment relationship with China. The Chinese Government estimates total outbound investment of US$1.25 trillion (A$1.44 trillion) over the next 10 years.

ChAFTA will promote further Chinese investment in Australia by raising the Foreign Investment Review Board (FIRB) screening threshold for private companies from China in non-sensitive areas from $248 million to $1,078 million.

Consistent with the promise made by the Coalition at the last election, the Government will be able to screen investment proposals by private investors from China in agricultural land valued from $15 million and agribusiness from $53 million.

Furthermore, FIRB will continue to screen proposed investments by Chinese State Owned Enterprises regardless of value. These provisions are consistent with Australia’s trade agreements with Korea and Japan.

ChAFTA will also contain an Investor State Dispute Settlement (ISDS) mechanism. This will enable Australians to invest in China with greater confidence. The ISDS provisions contain strong safeguards to protect the Australian Government’s ability to regulate in the public interest and pursue legitimate welfare objectives in areas such as health, safety and the environment.

With a view to maximising the benefits of the FTA for business, Australia and China have also agreed to review their bilateral taxation arrangements, including relief from double taxation.

Negotiations for a free trade agreement with China commenced under the Howard Government in 2005 and languished between 2007 and 2013.

China is Australia’s largest two-way trading partner in goods and services (valued at more than $150 billion in 2013), our largest goods export destination ($95 billion in 2013), and our largest source of goods imports ($47 billion in 2013). China is Australia’s largest services export market ($7 billion in 2013).

ChAFTA assures the future competitiveness of our exports. Trade and Investment Minister Andrew Robb and Commerce Minister Gao Hucheng today signed a Declaration of Intent in the presence of Australian Prime Minister Tony Abbott and Chinese President Xi Jinping at Parliament House in Canberra.

Both countries have undertaken to conduct respective legal reviews of the concluded text and prepare Chinese and English language versions for signature in 2015.

 

 

Prime Minister
Minister for Trade and Investment

China agrees to drop import tariffs on Australian resources

China-agrees-to-drop-import-tariffs-on-Australian-resources-657744-l_300
The mining sector has welcomed a new free-trade agreement (FTA) signed with China yesterday; a deal that was 10 years in negotiations which will lift export tariffs and provide for the importation of Chinese labour.

The FTA eliminates all Chinese tariffs on Australian resources and energy products.

Coking coal tariffs in China will be lifted immediately, and thermal coal tariffs will be gone within two years.

With 14 agreements affecting various Australian export industries, the deal is one of the most significant China has ever signed with a developed country, federal trade minister Andrew Robb said.

The new FTA will also allow China to bring skilled labourers to work on major Australian projects.

Robb has insisted this is no different to current legislation.

“It means that if there are no Australian labourers available – and it won’t be labourers, it will be skilled workers – for a particular project, they will be able to apply to get an investment facilitation agreement,” he said.

Labor opposition highlighted that the government has refused to release the full details of the FTA.

Senate opposition leader Penny Wong said the text of the agreement would not be released until after it has been signed next year.

NSW mining said the new agreement will help to underpin future investment in NSW and help to secure jobs.

China accounts for 22 per cent of NSW coal exports, up from 1.1 per cent in 2007-08.

The International Energy Agency estimated that global demand for electricity may double on 2009 levels by 2035, and NSW Mining said coal is forecast to meet than increase in the next five years, over and above oil or gas.

Talk radio shock jock and Liberal supporter Alan Jones criticised Prime Minister Tony Abbott for the deal on air yesterday, criticising the purchasing freedoms the new agreement will allow China in Australia.

“Can Tony Abbott go and buy a farm in China? No, the answer is no Prime Minister, the answer is no he can’t, nor can he buy a coal mine, nor can he buy a steel mill.”

Jones said the new agreement would fail the “pub test” and affect the Liberal party at the next federal election.

Rio Tinto’s new $3.5 billion iron ore mine approved

Western Australia’s environmental authority has approved Rio Tinto’s plan to build a massive new iron ore mine in the Pilbara.

The Koodaideri mine would be located 110 km north-west of Newman and is expected to have a 30 year life span.

According to documents filed by Rio subsidiary Mount Bruce Mining, the mine is expected to produce 35 million tonnes of ore a year, before a ramp up by 2030 which will see that figure increase to 70 million tonnes a year.

The mine would require a new 167 km railway to be built in order to connect the mine to Rio’s Dampier-Tom Price line.

New roads, power sources, water infrastructure and FIFO village facilities would also be need to be constructed.

Up to 2,000 people would be needed to build the mine while 700 workers would be required for the mine’s operation.

The estimated price tag for the mine and rail development is $US3.2 billion ($3.5 billion).

The Environment Protection Authority said the mine could go ahead subject to 14 conditions including measures to protect local bat and quoll colonies.

It also wants to ensure that the mine does not increase the spread of asbestos in the environment.

The proposal is open to a two-week public appeals period before being sent to WA’s Minister for Environment Albert Jacob for final approval.

The EPA’s approval comes one the same day as the price for iron ore hit its lowest point in five years.

Dropping 4 per cent overnight, the commodity is trading at $US72.10 a tonne.

However, with a production cost of just over $US20 a tonne, Rio is shielded from price drops, and plans to expand its exports out of the Pilbara from the current 270 million tonnes a year to 360 million tonnes a year.

A final investment decision for Koodaideri is not expected until at least 2016, as the company focuses on upping production through less expensive brownfield expansions.

Metal-Expo’2014

Metal-Expo’2014, the 20th Jubilee International Industrial Exhibition with 650 exhibitors from 35 world countries was held on November 11-14 in Moscow. Around 30 000 users of ferrous and non-ferrous products from different industry segments including construction, heavy engineering, fuel & energy, transportation & logistics, steel trading, research etc. visited the event. The majority of exhibitors sum up their participation as highly efficient expressing intention to exhibit in the next Metal-Expo event.

BNMME BOOTH

It’s our 7th continuous attending to the Expo. We meet old friends here, and know new friends as well.

mmexport1416369330029mmexport1416369323172

See you next year, METAL-EXPO 2015, in Moscow.

Good signs in residential construction: BlueScope

BlueScope

BlueScope Steel reaffirmed its first half guidance for the 2015 financial year at its AGM yesterday and mentioned that residential construction in Australia was encouraging.

Business Spectator reports that chairman Graham Kraehe told investors that major turnaround initiatives of recent years had begun to pay off. The company’s first half net profit after tax for the 2015 financial year would be similar to the second half of the 2014 fiscal year, which was $89.6 million.

“Other pleasing developments for the year were the $246 million lift in operating cash flow and strong balance sheet with 5.5 per cent gearing at June 30,” said the chairman in a statement.

There was strong demand in new residential developments in Australia, as well as south-east Asian and US trade.

Kraehe mentioned that positive signs existed around initiatives including Zincalume and updates to the Colorbond line, and the integration of the acquired Fielders, Orrcon and Arrium sheet and coil businesses.

Read more at http://www.ferret.com.au/articles/news/good-signs-in-residential-construction-bluscope-n2519051#3xL0Bb65c9a2fEq4.99