Archive for the ‘News’ Category

Malaysia grants temporary licence to Lynas Corporation

February 2nd, 2012

Malaysian authorities have  granted approval to Australian miner Lynas Corp to operate its 700 million ringgit ($A217 million) rare earth plant.

The Atomic Energy Licensing Board says it will grant Lynas a temporary operating license. It must submit plans for a permanent disposal facility within 10 months and make a $A47 million financial guarantee with the government. The approval on Wednesday eases uncertainty for Lynas and investors after speculation that the licence could have been rejected in the face of opposition from political parties and residents near the plant ahead of national elections expected within months.

The board warned on Wednesday that the licence can be revoked if conditions are breached.

“The temporary licence has been approved with conditions. If these conditions are not met, the temporary licence can be suspended or cancelled and subsequent applications for the licence will not be considered,” the atomic licensing board and the Ministry of Science said in a joint statement.

 

Source: The Age- Business Day, Reuters- Niluksi Koswanage

Click here to read Media Announcement from Lynas Corporation- AELB announces its approval of temporary operating licence

 

Investment sign of economic strength

February 1st, 2012

Treasurer Wayne Swan says a new report showing continued growth in major investment projects is another example of the economy’s strong fundamentals.

Deloitte Access Economics says investment projects continued to progress through the planning stages during the December quarter, despite the backdrop of an uncertainty global economy.

The independent economic forecaster said importantly for current economic activity, much of the growth in investment projects has been in definite projects – either under construction or committed to commence soon. “The value of projects underway provides a healthy buffer against a potential global slowdown in 2012,” Deloitte Access Economics partner David Rumbens said on the release of the forecaster’s Investment Monitor for the December quarter today.

It shows that the total value of projects grew by a further 2.1 per cent in the quarter, compared to the previous three months, to a staggering $912.7 billion.

Projects have increased 17.5 per cent over the year. Of these, definite projects reached a value of $415.4 billion, a massive 43 per cent rise over the year. Mining projects account for 46 per cent of all investment projects under construction or committed.

Such projects had helped to deliver the strongest growth in business investment spending ever seen during the September quarter 2011, and at a time when other sectors of the economy were in the doldrums.

“This is not likely to be the end of the investment surge in Australia,” he said.

Mr Rumbens expects investment levels to continue rising over 2011/12 and the following two years, driven by a healthy pipeline of projects awaiting approval, in which mining projects will again dominate.

Mr Swan said the report was yet another example of our economy’s strong fundamentals. “(It) shows why Australians can be confident in our country’s outlook,” he said, adding that people should ignore the Opposition’s attempts to talk the economy down.

 

Source: AAP, Market News

Housing woes strain banks

January 30th, 2012

A slowdown in Australia’s housing market is starting to strain bank balance sheets, with the nation’s biggest lenders being forced to pay top dollar to lock in longer-term funding.

Commonwealth and Westpac have tapped local investors for a combined $6.6 billion in recent weeks, paying a premium to secure bonds with a maturity of five years at a time when Europe’s debt problems continue to push up costs.

This month, ANZ raised $1.2 billion in 10-year funds from European investors in the most expensive raising so far this year. ANZ is also planning to sell four-year bonds to Japanese investors over the next few weeks.

This high cost is adding to pressure to push through additional interest rate rises on home loans as banks seek to protect profit margins.

While Australian banks remain well funded, senior bank executives privately concede a slowing housing market, as well as pressures across Australia’s east coast economy, has meant home loan customers now are taking longer than expected to pay off mortgages.

”The economy has been slowing down, therefore the asset profile has been getting longer and longer,” said one bank executive who specialises in treasury operations. Under bank accounting rules, loans made to customers are known as assets. The executive said five-year bonds in Australia ”are probably as long as you can go”, but they will help lengthen the banking system’s funding profile.

UBS chief economist Scott Haslem said the recent bond issues by CBA and Westpac set ”an expensive benchmark and pressures bank margins”.

It also suggests smaller banks ”may now find it difficult to lend profitably”, he said. This strengthens the case for the Reserve Bank to cut interest rates by 25 basis points at next week’s board meeting as it seeks to keep the cost of credit low.

The latest accounts for CBA show its average funding book is currently running at 3.6 years, down from 3.8 years in fiscal 2010.

Through a complex process used to fund home loans, banks generally calculate that most mortgages will be paid down in five to eight years, rather than the 25 to 30-year time frame in which most borrowers take out a loan

This is due to several factors such as owners selling properties part way through the loan period and paying off the entire debt. Some borrowers often pay off more than the minimum mortgage rate, speeding up the sell-down.

But a cooling property market has led more owners to stay in existing property.

At the same time, rising consumer caution is curbing additional mortgage payments with more funds being channelled into shorter-term savings.

A second bank executive said the longer funds being raised by banks put additional pressure on profit margins already being squeezed as Europe’s economic problems cause havoc on global wholesale markets.

”Nobody wants to see the term [funding] shorten; that’s why banks are now paying top dollar,” an executive with another major bank said. ”The problem is whether the cost can ultimately be passed on to the borrower.”

The first two months of the calendar year are traditionally the busiest time for banks raising wholesale funds. But global concerns over Europe’s sovereign debt problems have pushed up pricing, causing wholesale raisings to slow sharply. Since the start of January, banks have raised $12.8 billion here and offshore, figures compiled by Deutsche Bank show. This time a year ago raisings were running at $23.9 billion, the figures show.

Deposits now comprise about 50 per cent of bank funding, but banks must raise the shortfall through a combination of short-term and long-term wholesale funding.

Australian banks need to borrow as much as $80 billion over the next year to replace maturing funds, analysts say. Much of this will be covered bonds, which are bonds secured by assets such as home loans.

 

Source: Eric Johnston- The Age, Business Day

World Trade Organisation rejects China appeal on mineral curbs

January 30th, 2012

Photo Source: Reuters

World Trade Organisation judges rejected China’s appeal of a ruling that found restrictions on exports of nine raw materials break global rules and give the country’s manufacturers an unfair edge over competitors.

The WTO concluded on July 5 that Chinese quotas, export duties and license requirements on overseas shipments of industrial ingredients including coke, zinc and bauxite are discriminatory. The restrictions have stoked tensions between China and its trading partners, which accuse the Chinese government of having unfair commerce and currency policies.

US Trade Representative Ron Kirk called the Appellate Body report a “tremendous victory,” particularly for manufacturers and workers. The decision “ensures that core manufacturing industries in this country can get the materials they need to produce and compete on a level playing field,” Kirk said in an e-mailed statement from Washington.

Today’s affirmation of the initial panel ruling may prompt the US and the European Union to make good on threats to complain at the Geneva-based WTO over Chinese restraints on exports of rare earths, a group of 17 elements used in high-tech products such as Boeing helicopter blades, Nokia cell phones and Toyota hybrid cars.

‘Deeply troubled’

The outcome of this case obliges China to bring the challenged measures into compliance with the rulings, the European Commission said in a statement from Brussels. “However, the EU continues to be deeply troubled by China’s use of export restrictions not only on the specific products at issue in this dispute, but also on rare earth and many other industrial raw materials.”

Appellate Body judges urged China to modify its policies on raw-material exports to ensure they “do not operate to bring about a WTO-inconsistent result.”

“China respects the rulings of the WTO and will apply reasonable policies to administer resource products in accordance with the WTO rules, so as to realize sustainable development,” the Chinese mission in Geneva said in an e-mailed statement.

China, the world’s second-largest economy, is the top producer of cadmium, gold, indium, iron ore, lime, lead, manganese, mercury, molybdenum, phosphate, salt, tin, tungsten, vanadium and zinc. Its export restraints have caused worldwide supplies of many raw materials to plummet, sending prices higher and providing an incentive for manufacturers to move to China to take advantage of the cheaper materials.

Economic importance

The commodities at issue in the WTO complaint, filed by the US, the EU and Mexico, also include magnesium, manganese, silicon carbide, fluorspar, silicon metal and yellow phosphorus, which are used by the steel, aluminum, automotive and chemicals industries.

The EU said imports of the raw materials covered by the case reach 1 billion euros ($1.3 billion) a year and that “the economic importance is well beyond this figure as those represent inputs for the production of a large range of products.”

China argued that the restrictions are necessary to conserve exhaustible natural resources and ease overproduction and emissions of carbon and sulfur gases from furnaces. The US, the EU and Mexico said the curbs discourage the export of materials that are “critical” for their manufacturers, while keeping them cheaper and readily available in China.

Rare earths

Rare earths became a political and legislative issue after China moved to limit domestic output and slash export quotas in July 2010 by 40 percent, souring ties with major users including the US and Japan, where buyers have cut usage after prices soared in the first half of 2011. The Chinese government, which supplies 95 percent of global rare earths, said on Dec. 28 it was leaving the 2012 overseas sales caps virtually unchanged.

The US Energy Department said earlier this month that limited supplies of five rare-earth minerals — dysprosium, terbium, europium, neodymium and yttrium — pose a threat to increasing use of clean-energy technologies such as wind turbines and solar panels. While prices of rare earths fell in the second half of 2011, they remain volatile, leading some companies to search for ways to consider reducing reliance on the minerals, the Energy Department said.

China has said the curbs protect the environment and are in line with its WTO commitments. The country’s Inner Mongolia Baotou region produces so-called light rare earths such as lanthanum, cerium and samarium. Heavy rare-earth production, concentrated in the south of China, includes the elements dysprosium, gadolinium and terbium.

 

Source: Jennifer M. Freedman, Bloomberg


Related Coverage:

Updated Media Coverage- China Rare Earths Safe from WTO ruling on export curbs

Middle Kingdom still reigns on rare earths- The Age, Business Day

Banks pull cash from Europe

January 27th, 2012

Australian banks aggressively cut their exposure to Europe’s troubled economies as the region’s debt crisis intensified late last year, pulling billions of dollars in funds from Belgium, France and Spain.

At the same time, Europe’s banks cut more than $US8 billion worth of loans from the Australian economy, as they began to feel a funding squeeze in their home market.

Still, figures to be released this morning from the Swiss-based Bank of International Settlement show Australian banks increased their exposure to Italy by more than $US700 million in the September quarter even as fears spread that Europe’s third-largest economy would not be able to meet its massive debt obligations.

There were also signs that funds were being shifted to Switzerland, which is not a member of the euro zone.

The most dramatic change has been with private and public debt in Spain, where Australian-bank exposure was cut to $US212 million at the end of September from a little over $US1 billion in the June quarter.

Australian banks cut their exposure to Portugal entirely during the second half of last year. And since the end of 2009, they have had no direct exposure to Greece.

Elsewhere, exposure to France fell slightly to $US11.6 billion at the end of September from $US11.7 billion three months earlier. Lending to Belgium, home to troubled bank Dexia, was cut by more than $US330 million.

The figures also provide an indication of which banking systems are likely to take the biggest hit as talks continue to persuade holders of Greek bonds to take hefty losses as part of a debt restructuring. They are being pressed to accept losses of 60 to 70 per cent of face value.

France’s banks have the biggest exposure to Greece, with loans of more than $US43 billion. German banks also have significant exposure, nearly $US37 billion. Both countries have cut their exposure sharply over the past year.

The BIS figures also show how the debt crisis is being felt around the world. From June to the end of September, French banks pulled more than $US4.5 billion worth of loans from the Australian economy. Italian, Irish and Spanish banks each cut exposure by hundreds of millions of dollars as they repatriated capital.

German banks appeared to make up some of the shortfall, increasing their exposure to Australia by nearly $2 billion.

While the BIS figures provide a snapshot of banking-sector risk, they do not give bank-by-bank exposure. Nor do the banking statistics include a currency breakdown or information on which claims are marked to market and which are held to maturity.

Separate figures from the bank regulator, the Australian Prudential Regulation Authority, showed France’s BNP Paribas shaved $855 million from its direct lending book here over the past year. Societe Generale trimmed more than $260 million in loans.

The APRA figures does not include syndicated loans.

 

Source: Eric Johnston, The Age- Business Day

 

Weak inflation puts rates call in focus

January 25th, 2012

Another interest rate cut next month remains the odds-on favourite after tumbling food prices sent Australia’s headline inflation rate to its lowest level since the depths of the global financial crisis.

Consumer prices were unchanged in the three months to December following a 0.6 per cent rise in the third quarter of 2011, according to data released by the Australian Bureau of Statistics today. The market had anticipated a 0.2 per cent increase.

The December quarter reading is the lowest since the final three months of 2008. At an annual rate, the headline CPI figure came in at 3.1 per cent, its lowest in four quarters and less than the 3.3 per cent economists had tipped.

HSBC economist Paul Bloxham said the spur for a Reserve Bank interest rate cut next month would be a weaker jobs market and the worsening economic situation offshore.

“We think the RBA will cut interest rates next month because the inflation numbers today were low enough to allow them to do that,” Mr Bloxham said. “But the key reason for cutting rates will be the softening labour market and the global slowdown.”

The dollar initially fell a third of a US cent before bouncing back above the $US1.05 level as traders factored in how the data could influence next month’s rates decision.

What it means for rates

While the weak headline inflation numbers point to weakening price pressures, the RBA will sift through the flurry of figures when making its own call on whether to slice interest rates next month for a third consecutive meeting.

Its preferred gauge – technically, the average of the trimmed mean and weighted median inflation figures – actually crept higher last month to 2.6 per cent, more than the 2.4 per cent rate economists had been tipping.

Even so, that rate remains well within the RBA’s target of 2-3 per cent over time and so won’t by itself preclude an RBA rate cut on February 7.

“The half year is telling me that annualised underline rate is still rising comfortably within if not below the 2-3 percent band and over the year maybe around the 2.5 per cent mark,” said David de Garis, senior economist, National Australia Bank.

RBC Capital Market senior economist Su-Lin Ong said the result was in line with a recovery in fruit production easing produce prices in the market.

“Core inflation is giving (the RBA) the scope to lower rates,” said Ms Ong. “It’s consistent with further modest easing (in rates).”

The dollar

The Australian dollar recovered an early drop to be about a 0.4 of one US cent higher after the release of weaker-than-expected consumer price index data.

Rochford Capital currency director Derek Mumford said the increase in the central bank’s annual trimmed mean gauge has investors speculating that the RBA’s rate cutting cycle may take a break soon.

“That would suggest that in the short term interest rates can come down but perhaps the RBA will be less keen to cut rates sharply.”

There may be a cut on February 7, said Mr Mumford, but after that the RBA may wait to see what the trend of inflation is.

Financial markets are rating the prospect of a rate cut next month as about a four-in-five chance. Investors continue to predict the RBA’s cash rate will since to 3.5 per cent by June – implying three typical quarter-point rate cuts by then.

 

Source: Chris Zappone, The Age- Business Day

Origin upbeat as gas plans expand

January 24th, 2012

Picture Source: Origin, AFP

The door remains open for the development of a third stage expansion of the Asia Pacific export gas project launched by Origin Energy and ConocoPhillips, as the venture moves closer to a final investment decision on the second phase expansion.

The partners announced yesterday that binding agreements had been reached with Sinopec for the sale of an additional 3.3 million tonnes of gas annually, coupled with the sale of a further 10 per cent equity in the project to the Chinese company for $1.1 billion, raising its total stake to 25 per cent.

Once government approvals are in place, probably in the next few months, a final decision is expected to be made to proceed with the second phase. This will boost exports to 9 million tonnes annually.

Despite the caution about the environmental impact of coal seam gas projects, coupled with wariness over the blowout in construction costs for some large projects, Origin remained upbeat.

”China’s got a very clear plan to double the role of gas from 4 per cent to around 8 per cent” of its total energy supply, Origin’s managing director, Grant King, said.

”Any number that doubles in China is huge. There will be robust demand for gas.”

The sale of additional equity to Sinopec will cut Origin Energy and ConocoPhillips’s stake to 37.5 per cent each.

”We’re now at about the right point for the size of the investment and the size of [Origin],” Mr King said.

The door remains open to a further two phases of expansion of the project, which already have approvals in place.

A third phase expansion was ”an option”, Mr King said. ”Right now we really are focused on delivering the first two.”

Sixty per cent of the project’s costs have fixed price contracts, with varying controls in place over the other contracts needed for the project.

The first phase, for the export of 4.5 million tonnes of liquefied natural gas annually, will cost $12 billion, rising to $20 billion with the second phase expansion, also of 4.5 million tonnes.

Sinopec is committed to take 7.6 million tonnes of gas in total a year, with Japanese utility Kansai Electric Power Co to take 1 million tonnes annually. The remaining 0.4 million tonnes a year is to be sold into the spot export gas market.

The final price paid by Sinopec for its equity does not include its share of the cost of the investment in the project carried out to date, which is yet to be finalised.

 

Source: Brian Robins, The Age- Business Day

 

Jobless rate expected to soar to 6 per cent

January 23rd, 2012

The Australian economy is at a fork in the road, and how well Europe manages its debt crisis will decide which of two routes the nation follows, a business outlook report reveals today.

Deloitte Access Economics warns that Australian companies need to allow for “two different paths” over the next 24 months.

The report warns that if Europe “drops its load” joblessness may rise to 6 per cent from its present 5.2 per cent.

One scenario has been coined “Muddle Through” and involves Chinese strength dominating Europe’s weakness.

The other is “Europe Blows” and, while resource sector construction would still surge under this scenario, the Australian economy as a whole would “tank”, the report says.

“If the world muddles through, then Australian will grow faster than you think it will,” it continues.

If Europe stabilises with the central bank “pumping enough liquidity”, Australia will cut rates “early and often” and a credit crunch for corporates may follow.

Meanwhile, the report says the uncertainty will weigh down on jobs in the short term.

Employers are more likely to offer existing workers extra hours rather than hire new staff.

US stocks ended a touch higher on Friday after a better week, but European stock markets closed slightly lower as investors locked in profits.

European finance ministers will meet today as markets wait to see if Greece can finally cut its debt mountain.

The Australian futures market was pointing to a 10-point fall for the start of trading on the stock exchange this morning.

“Monday will be flat to down slightly and then we’ll start to take out lead from the European finance ministers’ meeting,” Shane Oliver, chief economist at AMP Capital Investors, said.

Investors will also be weighing up the prospect of more profit warnings before the company reporting season this week.

 

Source: Olga Galacho, Herald Sun