Friday, June 21, 2013

US foundry moves to Australia to exploit resources boom

Times are tough for Australian manufacturing, even though the Australian dollar has fallen from its recent highs.

But while some companies are struggling to survive by off-shoring, a big US company is reversing the trend.

Weir Minerals has moved its divisional headquarters to Australia to be closer to the production phase of the mining boom.

Listen to my story broadcast on this morning's edition of AM.

Hidden on Sydney's lower north shore, the company's foundry makes heavy duty pumps and components for the mining industry - 1,000 parts a week from 11,000 tonnes of molten metal poured every year.

It is the biggest foundry of its type in Australia.

Late last year it "in-shored" - relocating its divisional headquarters from the United States to Australia.

Weir Mineral's plant manager Howard Cullis believes the company on track for growth.

AUDIO: Weir Minerals relocates to exploit mining boom (AM)
"I think geographically we're well placed to service the whole of Australia," he said.

"We have probably some of the shortest lead times with what we manufacture anywhere else in this business so the customer gets what he wants when he wants it."

The company's managing director Dean Jenkins says basing the division in Australia was a no-brainer.

"It's a matter of being prepared to make quick decisions and being flexible about where you do things and what you do, and making sure you understand in a local environment what really adds value that customers will pay for,"

"And for us here in Australia it's about how do we get parts to the customer very quickly. And to be in Australia, have a manufacturing capability in Australia allows us to do that."

Weir employs a thousand people in Australia, half of them at Artarmon.

It is evidence that manufacturing in Australia is not necessarily fading, despite the outlook for the resources sector.

And it is not just hot work in the foundry.

Weir also carries out major research and development locally as it stays ahead of industry needs to keep the business model viable.

Thursday, June 20, 2013

Markets melt as Bernanke suggests Fed money printing is almost over

The world's most powerful central banker has declared that the economic emergency in the United States is nearing an end.

The chairman of the US Federal Reserve, Ben Bernanke, has signalled that the unprecedented money-printing program, known as quantitative easing, might be wound down by the end of the year.

But the cautious optimism about the US sparked a heavy fall on Wall Street as investors fretted that an era of cheap and easy money might soon be over.

The Australian dollar dived to a two-year low as global investors moved their bets to a resurgent greenback.

The straight talk from Dr Bernanke is as significant as earlier mixed signals about the future of quantitative easing, which have in the past have sparked confusion and major sell-offs in global markets.

But today, his language was explicit.

Using a driving analogy, Dr Bernanke said the Fed's current bond purchases, valued at $US85 billion a month, might be about to go into reverse.

"If the incoming data support the view that the economy is able to sustain a reasonable cruising speed, we will ease the pressure on the accelerator by gradually reducing the pace of purchases," he said.

The comments are being interpreted as Dr Bernanke coming out of the economic closet after weeks of speculation that the Fed was about to taper its money printing.

Speaking after the Fed's two-day meeting, he even flagged some rough dates - a scaling back by the end of the year, and maybe an end by mid-2014.

AUDIO: Bernanke flags end to US stimulus program (The World Today)
These are qualified forecasts, and are coupled with the prediction that the US jobless rate will fall from the current 7.6 per cent to 6.5 per cent by next year.

So does that mean US interest rates are about to rise?

Using the driving analogy again, Ben Bernanke said although the Fed might be taking its foot off the accelerator, it wouldn't be slamming on the brakes any time soon.

"The economic conditions we have set out as proceeding any future rate increase are thresholds, not triggers," he said.

"For example, assuming that inflation is near our objective at that time as expected, a decline in the unemployment rate to 6.5 per cent would not lead automatically to an increase in the federal funds rate target but rather would indicate only that it was appropriate for the committee to consider whether the broader economic outlook justified such an increase."

Negative reaction

After almost five years of crisis since the collapse of Lehman Brothers, you might expect elation on Wall Street.

But instead of popping champagne, investors started selling as soon as the Fed's statement hit their screens.

The Dow Jones Industrial Average closed 1.3 per cent weaker in what some see as an overreaction to the prospect that the era of easy stimulus money is over.

Fund manager Cliff Noreen told Bloomberg that Dr Bernanke's intention to slow money printing should not have been a shock.

"I think what he said was very logical. A lot of market participants forget that we've had quantitative easing for four and a half years now," he said.

"Eventually this has to stop and they need to pull the throttle back on it."

The Australian share market followed the US lead and was down 2.4 per cent at 1:25 pm (AEST).

JP Morgan senior economist Ben Jarman says the Fed is moving cautiously with a clear timeline to ensure investors don't panic.

"He's been very clear this time around to make clear that if they do follow the plan and if they are tapering their QE and in effect and absolutely stopping that by mid-next year, then they'll only be doing that in a situation where the labour market is hitting its stride," he said.

Mr Jarman doubts the Australian dollar is in a permanent decline.

"It's going to go higher from here and that's really on the view that China, while there are risks around it, actually the talk around the downside is somewhat overdone," he said.

But that China insulation theory might not be has not been immediately validated.

Factory production shrank at a faster pace this month, adding to signs that growth is weakening in the world's second-biggest economy.

Wednesday, June 19, 2013

ADM's shady history probed by Senate committee as suitor sells GrainCorp deal to regulators

By Business editor Peter Ryan

The US agribusiness giant Archer Daniels Midland has been forced to confront a history of alleged price-fixing and market-rigging as its seeks to win regulatory approval for its controversial takeover of GrainCorp.
ADM has encountered intense questioning from a Senate estimates committee amid concerns that the $3 billion deal would put a foreign stranglehold on grain storage and infrastructure.

Listen to my report on the ADM grilling broadcast on The World Today.

The company's grains boss Ian Pinner attempted to deflect the past accusations during occasionally hostile questioning, and has assured the committee that ADM is now a fundamentally different business.

Mr Pinner is in Australia to convince farmers and the Foreign Investment Review Board that the GrainCorp takeover will not leave them worse off.

He also has to win over politicians like Liberal senator Bill Heffernan, who has been digging into ADM's alleged history of price-rigging and corruption.

Senator Heffernan, himself a GrainCorp client, confronted Mr Pinner with a myriad of past accusations and proven incidents that go to concerns about ADM's ethics and market power.

"It's less than glorious, your past record," the Senator said to Mr Pinner during the hearing, before reading out a number of headlines from media reports.

"Archer Daniel Midland settles price fixing charges for $400 million; Deal in food enhancer fixing suite on hold; Court reinstates seed alleging Archer Daniels suite in the market rigged; Archer
Daniels accused of espionage; Big citrus acid buyers sue Archer Daniels; Former ADM official indicted for fraud; and so it goes on."

Mr Pinner told Senator Heffernan that those episodes would not be repeated.

"Senator, there have been incidents in the past which ADM is not proud of, that is absolutely clear, but I would say that there have also been changes," he said.

"ADM is committed to not only acting in a compliant way but acting in an ethical way."

The Senator offered a warning.

"Can I just tell you that our mob here, GrainCorp, we're not into that s***," he said.

"No. And we don't want anything to do with anyone that is."

The New South Wales Nationals Senator Fiona Nash also appeared unconvinced, despite ADM's assurances that it was all history.

"Is price fixing a mistake? How do you term that as a mistake?" she asked.

"I think you're referring to an incident which was nearly 20 years ago now," Mr Pinner replied.

"Sorry, no. The timeline's not of that much interest, we're actually trying to get a sense of the company, where it's been, where it is now, in terms of fit and proper," Senator Nash said.

ADM is also trying to hose down concerns that grain grower access to storage and transport infrastructure that comes with the deal.

ADM says its committed to fair and open dealing, and plans to ramp up its infrastructure spending to $300 million.

But once again Senator Heffernan suggested the deal would hurt rather than assist farmers.

He also wanted assurances that A-D-M was committed to paying its fair share of Australian tax if the deal goes through, given recent allegations that giants like Apple and Google have been avoiding it.

"We hope we don't put the hurdles too high for you but we, also in your aspiration, we want to include a national interests benefit and make sure you pay your tax and all the rest of it," he said.

"God bless you and get on that plane and have a safe journey."

"We will pay our tax, chairman, we can assure you of that," Mr Pinner replied.

The Senate grilling was a warm-up for what might be in store for ADM as it works to convince the Foreign Investment Review board that the GrainCorp takeover passes the national interest test.

The Treasurer Wayne Swan gets the final say.

But unless there is a decision by the 12th of August when the government goes into caretaker mode, a potential Coalition Treasurer could be influenced by National Party concerns.

Tuesday, June 18, 2013

RBA says dollar demise key to rebalancing economy in transition

The Reserve Bank has signalled it is counting on further falls in the high Australian dollar to help rebalance the economy.

In the minutes from its June board meeting, the RBA said recent cuts to the cash rate had helped tame the currency which was stubbornly high above parity until recently.

Noting the impact of the surprise cash rate cut in May to 2.75 per cent, the RBA said, "the exchange rate had also depreciated noticeably, though it remains at a high level considering the decline in export prices" over the past year.

"It was possible that the exchange rate would depreciate further over time as the terms of trade declined, which would help to foster a rebalancing of the economy," the minutes concluded.

The decline in the Australian dollar began on budget night last month as the Treasurer began his speech, and it has since fallen by as much as 8 per cent.

This morning, the Australian dollar was trading at 95.26 US cents at 11:38am (AEST), and had eased by around 0.3 of a cent after the release of the RBA's minutes.

While recent cash rate cuts and the outlook for slower economic growth have played a role in the dollar's demise, better fortunes for the US economy and a resurgent greenback has been the principal driver.

The minutes released today provide one of the more extensive snapshots on the RBA's view on the direction of the dollar after 2 percentage points in rate cuts since late 2011.

National Australia Bank currency strategist Ray Attrill expects the dollar's decline to continue.

"It is not going to return to the levels we saw at the beginning of the year and for much of last year, and that inherently makes the Australian dollar a less attractive asset for global investors," he said.

"The risks associated with owning a currency like the Australian dollar, in terms of the risk that you're going to get completely blown out of the water by very short-term movements in the currency, is what I think underlies a lot of the reversal of the Australian dollar's fortunes."

Room to move

The RBA's June board meeting left the cash rate steady at 2.75 per cent, but added that the outlook for steady inflation "might provide some scope for further easing".

But TD Securities Asia-Pacific Strategist Alvin Pintoh believes there is no clear indication the RBA is planning a rate cut in July.

"The global backdrop has changed very little since the June RBA meeting, and the tone of the domestic data have been mixed," he wrote in a note.

"A rate cut can't be ruled out, but there is little here to dissuade us from expecting the RBA to stand pat again next month."

The board also "observed that the effects of low interest rates had been evident in a range of housing market indicators", with building and loan approvals higher.

At the same time, the RBA says labour market conditions remain "somewhat subdued", with monthly employment data continuing to be "volatile".

The minutes released today pre-date official data released after the meeting which showed the Australian economy grew by a slower than expected annualised rate of 2.5 per cent in the March quarter.

The RBA also pointed to uncertainty on global markets because of speculation that the US Federal Reserve was about to taper its quantitative easing program.