Australian Economic News

[greengiraffe]

Aussie mining sector is already deeply in the news... at the worst, the well endowed resources will be buried in the ground awaiting stronger prices 

Mining job losses to keep rising as prices fall

• THE AUSTRALIAN
  
  
• NOVEMBER 30, 2015 12:00AM
  
• Barry Fitzgerald
  [Image: barry_fitzgerald.png]
  Resources Editor
  Melbourne
  
  

[img=650x0]http://cdn.newsapi.com.au/image/v1/b9010c09129e4172a3002624e350947b?width=650[/img]

BIS Shrapnel says 20,000 job losses in the period can be expected in the next three years.

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Resources industry job losses are tipped to continue to rack up over the next three years in response to the plunge in commodity prices, the slashing of growth capital expenditure and the completion of LNG export projects.

According to forecasting group BIS Shrapnel, a further 20,000 job losses in the period can be expected, coming on top of the 40,000 losses since investment peaked in 2012-13.
Resources investment fell 11 per cent from its peak to $80.3 billion in 2014-15, and is now forecast to decline almost 60 per cent further over the next three years to $33.9bn in 2017-18.
BIS Shrapnel’s Mining in Australia 2015-2030 report, released today, says the knock to investment is due mainly to the completion of LNG export projects, with further (smaller) falls in investment also expected in the coal, iron ore and gold segments.
It is not forecasting a recovery in investment until 2018-19, with a mild recovery to an estimated $42bn in 2019-20 — still only half of last year’s rate of expenditure.
Apart from the completion of the LNG projects, the plunge in growth capex by the industry is a response to the broad collapse in commodity prices, starting with coal in 2012-13, and since moving through all others.
BIS Shrapnel’s infrastructure and mining unit senior manager, Adrian Hart, warned that the bottom in commodity prices and related investment had yet to be reached.
He said the slowdown would continue to be a drag on Australian economic growth.
“While mining production will continue to rise strongly, led by new LNG exports, the facts are that this growth will be far less employment-intensive than the investment phase, albeit offering contractor opportunities for maintenance and facilities management,’’ Mr Hart said.
“Excluding oil and gas, mining investment has already halved since the peak, and we expect it to fall a further 40 per cent over the next two years — a 70 per cent decline overall from top to bottom — led by further declines in coal, iron ore and gold. Add in the sharp fall in oil and gas investment as LNG projects are completed, and the outlook is even worse,’’ he said.
Mr Hart said the falling mining investment had ramifications for the broader economy.
“Quite simply, Australia badly needs new investment drivers beyond mining to provide sustainable growth in jobs and incomes. While other tradeable sectors of the economy, such as tourism, are benefiting from the lower Australian dollar and starting to invest, the onus is also on governments to stand up and get back on the job of investing in productive public infrastructure,’’ Mr Hart said.
Despite the jobs and investment crunch in the resources industry, the heavy investment in growth projects before the prices boom began to fade away continues to push increases in production, with increases still to come over the next five years.
Gina Rinehart’s $10bn Roy Hill iron ore project is the latest example of that, with its first shipment of product to Asian customers expected next week and with a long ramp-up to full production ahead of it.

[BlueKelah]

With el nino set to hit australia pretty badly in 2016 causing high temps and droughts,  these funds have literally "bought the farm"

sent from my Galaxy Tab S

I think yr one liner fear factor needs justifications... I think all these funds are not run of the mill type of fun managers.

Mr Kelah, so far your bearish outlook on Aussie economy has been proven wrong... so far

i) Turnbull really turning into BULL
ii) Chinese appetite for strategic assets Down Under and globally remain strong
iii) The A$ appears to have bottomed and reversing a long term trend notwithstanding the continued decline in commodity prices
iv) The service and niche manufacturing sectors have been strong with the tailwind of the rebalancing of A$ and job creation has been strong.

I think, to be really objective in one's macropicture views, one has to be very hardworking as it will filter down to micropicks.

May I suggest that you work harder to provide better discussion on various issues especially those pertaining bigger picture analysis.

Regards
Expired Analyst

1) turnbull around but he is just full of bull, stocks market is declining almost 5000 now from almost 6000 points, property coming down with Syd/Melb joining in and economic growth expectation for next year has been adjusted down by the aussie gov. Haha you probably dunno about the Telstra / NBN fiasco that cost the aussie gov 10billion when he was the infocom minister.

2) chinese may be buying down under but thats not doing much for the aussie economy. Besides their appetite for overseas asset says little about whats going on in their own backyard. So far most of the data is showing a continued slowdown despite easing measures. I was spot on with the shanghai stock market crash, though the ChiNext is another story and will likely crash in the near future given the extremely silly valuations. 

3) could just as easily say AUD has taken a pause and will continue its down turn, been stuck around 70c to USD and on par with SGD for a couple months now. I dun think going up a few cents to the USD is a reversal. FACT : YoY its pretty much down a large amount, not sure which chart you are looking at and what T.A you are doing. I only remember just couple years back the money changer at raffles place wanted SGD 1.20++ for an aussie dollar. Have been pretty spot on, as last year predicted the commodity decline which will drag down the AUD.

4) Job creation looks strong but ABS figures are very volatile. Do you seriously think that 271,000 jobs created last month makes sense? Mining investment is still the boss of aussie economy which makes them boom. It's a no brainer that lean times will follow after the boom ended.

for micropicks i would just avoid stocks with significant China/Aussie exposure as the macros are looking pretty bleak for them.

China debt level is just too astronomical and the financial markets still to opaque and state controlled.

Aussie is gonna have a big ass problem with the budget deficit "blackhole" coming and their gov still continue welfare spending. Once they tighten their belt interesting things will happen.


If and when you work harder to discuss, I will too. At the moment, all I am seeing on VB is daily posting on what looks like the same threads, being posted on by the same person about the same things, with no real discussion going on. I would almost call it spamming though it seems useful to some buddies.

Not sure why the moderators are not worried about the wholesale "cut and paste" of articles, pretty sure there are some copyright rules. Maybe VB is just not popular enough to be noticed by the online news publishers for them to kick up a fuss..

[CityFarmer]

If and when you work harder to discuss, I will too. At the moment, all I am seeing on VB is daily posting on what looks like the same threads, being posted on by the same person about the same things, with no real discussion going on. I would almost call it spamming though it seems useful to some buddies.

Not sure why the moderators are not worried about the wholesale "cut and paste" of articles, pretty sure there are some copyright rules. Maybe VB is just not popular enough to be noticed by the online news publishers for them to kick up a fuss..

Moderator log:

I am brought to attention on this post.

All effort to contribute for the benefit of VB buddies here, are welcomed and appreciated, regardless of its popularity. I am at an opinion, that GG has contributed with an intention to share. The same applies to BK, although via different approach.

Spamming, is to post exactly the same, in a batch manner, to different thread. I did see GG post links of a post, in several thread, for ease of discussion, if any. No spamming issue here. I do understand the volume may cause discomfort to some, but again, preference can be configured to ignore them, if necessary.

Yes, I have no comprise on copyright issue. I have reminded GG in several occasions, and I am sure GG understood it. Cut-and-paste in whole, with reference to sources, are allowed for public-domain articles. I assume those articles are from public domains. We should only take a snippet, sufficient to put up a point, and link the source, for non-public-domain article. The same has been done with Straits Times articles by GG.

Regards
Moderator

[greengiraffe]

Opportunity for Australia as China converts to a consumer economy

• PETER CAI
  
  
• THE AUSTRALIAN
  
  
• DECEMBER 29, 2015 12:00AM
  

[img=650x0]http://cdn.newsapi.com.au/image/v1/16e6fc27349266cfbd7a04289bd12f77?width=650[/img]

As China’s economy undergoes transformation, new ­investment and export opportunities will be unique.

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There has been much pessimism about China as the world’s ­second-largest economy loses speed, growing at the slowest pace in more than two decades. The mid-year stockmarket crash and the sudden devaluation of the yuan have added further concerns to already jittery investors and policymakers around the world.

Much of their fears concern the slowdown in the traditional engines of growth such as manufacturing, infrastructure and real estate. The market reacts poorly to news of further weakness in manufacturing activity numbers. Shares in Australian miners, including BHP Billiton and Rio Tinto, have been hammered.
However, strong double-digit growth in Chinese consumer spending is doing wonders for companies focusing on consumer goods, such as Blackmores and dairy producer A2. Blackmores’ stock briefly crossed the magical threshold of $200 per share recently on the back of strong growth in the Chinese market.
McKinsey & Co conservatively estimates Chinese household income at $5 trillion, which is about three times Australia’s GDP. The gradual transition of China from a manufacturing powerhouse to a more consumption-driven economy has opened up an enormous new opportunity for businesses.
The recent Australia-China free trade agreement is also a game changer for Australian businesses, from financial services to aged care industries. An ANZ report has identified many niche areas of export opportunity, such as honey-related products, pearls, nuts, rock lobsters and fruit juices.
The aged care sector is a new opportunity opening up under the free trade agreement.
China’s population is ageing fast thanks to the one-child policy, which has been abolished belatedly.
Macquarie Capital has already made investments in the sector through China Senior Care, a company founded by US lawyer Mark Spitalnik. In 2014, the Royal District Nursing Service signed a joint venture deal with Zhongshan College to develop and operate an aged care facility in Jiangsu Province, north of Shanghai.
“The issue of ageing population is a critical issue for all countries, especially in our region,” said the chair of the RDNS board, Paul Montgomery. “There are 200 million people over the age of 60 in China and this number is expected to increase to 440 million by 2050.”
In December 2014, Ma Weihua, the former chief of the China Merchant Bank and executive chairman of China Entrepreneur Club, whose members include industry captains like Jack Ma, visited RDNS facilities in Victoria.
He said many business people in China were interested in the sector. “Aged care is not only a personal problem; it is a family problem as well as a social issue. Contemporary Chinese society cares about this issue. Though we have aged care facilities, they just cater for their basic needs. We need them to live there happily,” Ma says.
Under the FTA, Australian companies are allowed to build and own hospitals in China and this is a major concession. China’s healthcare sector is expected to grow from $357bn in 2011 to $1 trillion in 2020, according to a McKinsey report.
There is a chronic shortage of good hospitals in China. There are about 1350 Class-3 hospital and they tend to have the best doctors and equipment. But the problem is they attract most patients.
As China’s economy undergoes transformation, the new ­investment and export opportunities will be unique. Mark Hand, managing director of corporate and commercial banking at ANZ, says you just can’t pick a product that is successful in Australia and expect it to sell in China.
One promising area of investment is financial services. The FTA offers access for insurers, fund managers and other professionals. There are opportunities for big as well as smaller players. Under the agreement, China has committed to allow Australian insurance providers access to China’s statutory third-party liability motor vehicle market.
“This unprecedented market opening represents a potentially substantial opportunity for interested Australian insurers to leverage their existing expertise across risk underwriting, claims management and portfolio investing into one of the fastest-growing insurance markets in the world,” says ANZ.
China insurance market generated total premiums of 1.7 trillion yuan ($260bn) in 2013. It has been growing at 17 per cent a year since 2005. It is interesting to note big investors have forced Insurance Australia Group to abandon its expansion plan in China, citing risks involved. Many executives have been frustrated by shareholder demands for short-term returns.
John Thorn, a former director of NAB, says: “Even large companies get pressed by fund managers to get return on a very short term basis. This just does not happen in the emerging markets.”
The opening up of China’s fin­ancial services sector is also providing opportunities for smaller players. Golden Stand is a financial services company based in Guizhou province started by a group of Australian bankers. It is a financial services technology company that provides risk management services as well as securitisation of assets to China’s financial services industry.
Michael Wang, managing director at the firm, explains he and his team are taking advantage of the country’s reform push to deregulate the financial services industry. Beijing has relaxed its grip on the securitisation market, which allows companies and local governments to turn their illiquid assets into securities.
“The Chinese government has just opened up its securitisation market in 2014. We are facing a completely new market in an era of liberalised interest rates and I think the opportunity is simply amazing,” he said.
The company helps Chinese banks and financial services to build up their IT infrastructure to analyse assets, estimate risks and cashflow and use their financial engineering skills to turn them into securities.
One of the marketing pitches to Chinese clients is Australia’s strong record of prudential and risk management. All big four banks escaped the global financial crisis in relatively good shape.
The firm has secured two major contracts within four months.
China has a two-speed economy at the moment. While the industrial sector stagnates, the consumer spending boom is keeping the economy going. Australian companies need to take advantage of the new changing reality in China. They need to look no further than the extraordinary successes of Blackmores and dairy producers to appreciate the scale of the opportunities on offer.

[greengiraffe]

RBA happy with Australian dollar but further falls expected in 2016
DateJanuary 4, 2016 - 12:00AM

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[Image: 1444795415899.jpg]
Mark Mulligan
Senior markets and economy writer
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[Image: 1450212684739.jpg]

The Australian dollar has lost ground, but has also diverged from some of its usual drivers. Photo: Bloomberg

You can tell Reserve Bank of Australia governor Glenn Stevens is happy with how far the Australian dollar fell in 2015 by his silence.
For years a serial user of the "jawbone" technique of talking down the Aussie, Mr Stevens has been conspicuously quiet on the domestic currency for the last four months, despite its surprising resistance.
In August the RBA governor replaced the observation that "further depreciation seems both likely and necessary" in his monthly board meeting statement with "the Australian dollar is adjusting to the significant declines in key commodity prices".

[Image: 1451810630141.png]

Foreign investor interest in Australian companies and financial assets has propped up the Aussie. Photo: Westpac

Mr Stevens still appeared relaxed about the currency's relative value in his annual interview with The Australian Financial Review in December, when he broke with tradition and declined to nominate a new level.
"The answer to the question is the exchange rate has been adjusting – doing its job – and I note commodity prices are still falling, so it is possible that further adjustment will occur," he said.

Despite a decline of almost 11 per cent against the US dollar in 2015, the Australian dollar has lost less than 7 per cent on a trade-weighted basis, which is an important measure of the country's global competitiveness as an exporter of goods such as iron ore and of services such as tourism and higher education.
Dollar up 5pc

[Image: 1451810630141.png]

According to this modelling, the Australian dollar could slip further in 2016 Photo: NAB

In fact, the Australian dollar has appreciated more than 5 per cent against the greenback since early September, at a time when iron ore – Australia's single biggest merchandise export – is trading at near multi-year lows of about $US42 a tonne.
The weaker a country's currency is against its trading partners, the more competitive its exports are and the more likely its residents are to take holidays at home and avoid expensive imports. 
This fact has helped nurse Australia through the gradual decline in mining related investment and commodity prices since the end of the China-led resources boom in 2012.
But the recent disconnect has currency-watchers divided over why, and whether or not the Aussie will resume its gentle slide against the greenback once fundamental drivers kick back in.
They ascribe the Australian dollar's unorthodox behaviour to a range of factors, including buying by funds looking to hedge bets that it will continue to fall, a surge in Australian corporate and state bond buying by Japanese investors, merger and acquisition activity such as the $10.3 billion sale of the NSW electricity grid to a mainly foreign consortium, end-of-year book balancing and currency-hedging by Australian exporters, and market bets that the RBA has finished cutting the cash rate in the current cycle.

But CBA's chief currency strategist Richard Grace believes a further decline in Australia's terms of trade – which measures export prices against import costs – will drive down the Australian dollar against the greenback.
"That's why we've got further forecasts down in the exchange rate," he said. "Because we think it will catch up to the terms of trade, which will continue to fall."
Decline expected
The bank's official forecast remains for the Australian dollar to decline to US65¢ by the end of next year, although this is open to review after the US Federal Reserve's long-awaited decision in the middle of December to start lifting interest rates for the first time in almost a decade.
National Australia Bank said in late December it calculated the Australian dollar's "fair value" – where it should be according to conventional modelling – at about US67¢ or US68¢.
"Since the commodity price cycle peaked in 2011, significant valuation gaps – such as we saw in early 2013 and mid 2014 – have always resolved via a weaker currency," the bank said in an outlook note.
"We look for history to repeat itself in 2016."
Westpac's chief currency strategist Robert Rennie agrees orthodox drivers such as commodity prices and divergent central bank policies between Australia and the US, will ultimately pull the Australian dollar lower. But for now investor interest in Australian assets is holding the currency up.
"The picture we paint here is that demand for the Australian dollar is strong from non-traditional sources: real-money investors including sovereign wealth funds, infrastructure funds and equity investors," he said.
"However, our sense is the market is still too complacent on the Fed.
"The message the Fed gave us [in mid-December] is they fully expect to raise rates another four times in 2016.
"The potent combination of a stronger US dollar, higher rates in the US, weaker commodity prices, and increased risk aversion, will see [the]  Australian dollar eventually fall below US70¢," he said.


Read more: http://www.smh.com.au/business/markets/rba-happy-with-australian-dollar-but-further-falls-expected-in-2016-20151222-gltj6o.html#ixzz3wEMPeHPt 
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[BlueKelah]

http://www.smh.com.au/business/the-econo...ofuws.html

Deflation has started down under.