Transcript Economic and Financial Outlook for 2010

‘The Big Picture’
Long-Term Trends in Global Infrastructure Investment
and Commodity Prices
Warren Hogan
Chief Economist
May 2012
Outline
• Global Infrastructure Spending Trends
• Catching up for the industrialised economies
• Building out the emerging economies
• Commodity Boom – Natural Resources
• Linking infrastructure spending and commodity prices
• Some dimensions of the mining investment boom
• Case Study – Australia
• Overview of investment spending related to mining, energy and asscoaited
infrastructure
• Structural change and macroeconomic stability
1
1. Infrastructure spending
Is there an infrastructure cycle? Or just periodic bouts of under-investment
(% of GDP)
US infrastructure spending
4.5
4.0
A 25/30 year cycle?
3.5
3.0
2.5
2.0
Average = 2.5% of GDP
1.5
1.0
Under-investment
WWII
0.5
19
29
19
32
19
35
19
38
19
41
19
44
19
47
19
50
19
53
19
56
19
59
19
62
19
65
19
68
19
71
19
74
19
77
19
80
19
83
19
86
19
89
19
92
19
95
19
98
20
01
20
04
20
07
20
10
0.0
Sources: ANZ, BEA
2
9
4.5
8
4.0
7
3.5
6
3.0
5
2.5
4
2.0
3
1.5
2
1.0
Australia, lhs
USA, rhs
0.5
0
0.0
19
2
19 9
3
19 2
3
19 5
3
19 8
4
19 1
4
19 4
4
19 7
5
19 0
5
19 3
5
19 6
5
19 9
6
19 2
6
19 5
6
19 8
7
19 1
7
19 4
7
19 7
8
19 0
8
19 3
8
19 6
8
19 9
9
19 2
9
19 5
9
20 8
0
20 1
0
20 4
0
20 7
1
20 0
13
1
Sources: ABS, ANZ, BEA
3
% of GDP
% of GDP
A clear under-investment in the 1980/90s
Australian infrastructure spending data back to the 1960s highlights a similar
pattern to the US
The rise of the emerging economies
A long-term view of the structure of the world economy
% of total global GDP
40
India
China
Western Europe
US
35
India
China
30
W. Europe
US
25
20
15
10
5
0
1
500
1000
1500
1600
1700
1820
Source: Angus Maddison, ANZ Research
1870
1900
4
1920
1940
1960
1980
2000
2002
2004
2006
2010
Emerging Asia incomes are rising strongly
Bringing with it strong demand for primary commodities
Asia - Real GDP per Capita
(USDth)
5.0
4.0
3.0
2.0
1.0
0.0
1990
1992
1994
1996
1998
2000
C hina
Source: ANZ Research, United Nations
India
5
2002
2004
Indonesia
2006
2008
2010
Expect large changes in the urban population of many countries:
India, China, Pakistan, Indonesia & the US!
Urban Population (m)
1950
1970
1990
2010
2030
2050
Change 2010-2050 (m)
Bangladesh
1.9
5.3
22.4
46.8
89.4
143.3
96.5
China
72.1
144.5
314.8
606.8
879.4
1027
420.2
Hong Kong
1.7
3.5
5.7
7.4
8.5
8.9
1.6
Republic of Korea
4.0
13.0
31.6
39.9
41.8
38.0
-1.9
India
63.2
108.7
219.4
367.3
611.3
915.4
548
Pakistan
6.5
14.8
34.6
64.1
119.7
186.1
122.0
Sri Lanka
1.3
2.4
3.0
3.1
4.7
7.5
4.4
Cambodia
0.4
1.1
1.2
3.5
7.7
13.4
9.9
Indonesia
9.9
20.6
56.0
128.7
192.7
235.7
107.1
Lao People’s Democratic
Republic
0.1
0.2
0.6
2.0
4.3
6.3
4.3
Malaysia
1.2
3.6
9.0
20.2
29.0
34.8
14.7
Myanmar
2.8
6.1
10.0
17.0
27.4
37.0
20.1
Philippines
5.4
12.0
29.9
61.8
93.9
117.9
56.1
Singapore
1.0
2.1
3.0
4.6
5.2
5.1
0.4
Thailand
3.4
7.8
16.0
22.1
31.7
40.4
18.3
Vietnam
3.1
7.9
13.4
26.2
46.2
68.4
42.2
United Kingdom
40.0
42.9
50.8
55.4
61.0
64.6
9.2
United States
101.3
154.6
192.8
258.9
318.6
363.8
104.8
Australia
6.3
10.9
14.4
19.0
23.2
26.3
7.2
New Zealand
1.4
2.3
2.9
3.7
4.4
4.8
1.1
Source: United Nations
6
The rising demand for industrial metals is linked with surging
infrastructure spending
Growing incomes and rapid urbanisation have seen the demand for infrastructure
surge in the emerging economies
4.50
18.00
4.00
16.00
3.50
14.00
3.00
12.00
2.50
10.00
2.00
8.00
1.50
6.00
1.00
4.00
US Infrastructure Spending, % GDP
China Infrastructure Spending, % GDP (RHS)
Source: ANZ Research, BEA, World Bank
7
13
10
20
07
20
04
20
01
20
98
20
95
19
92
19
89
19
86
19
83
19
80
19
77
19
74
19
71
19
68
19
65
19
62
19
59
19
56
19
53
19
50
19
47
19
44
19
41
19
19
19
19
19
19
38
0.00
35
0.00
32
2.00
29
0.50
2. The commodity boom
Infrastructure spending is the primary determinant of real industrial commodity
prices over the long-term
Long-term commodity price cycle and US infrastructure investment
5
4.5
US Infrastructure (left)
ANZ Real Industrial Commodity Index (right)
4.0
4
3.0
3
2.5
2
Index
% of GDP
3.5
2.0
1.5
1
1.0
0
1932
0.5
1942
1952
1962
1972
1982
1992
2002
2012
NB. ANZ Real Base Metal Index includes Copper, Aluminium, Nickel, Zinc, Lead and Tin deflated using US CPI.
Sources: RBA, ANZ, BEA
8
Stronger long term commodity demand still seems assured
Emerging market demand is still modest on a per capita basis. The strongest
gains will likely to be in energy market, particularly natural gas
Commodity Consumption Per Capita
1.2
25
Steel
Sth Korea
Taiwan
1.0
20
0.8
Taiwan
0.6
kgs/capita
tonnes/capita
Copper
Japan
China
0.4
EU
Russia
0.2
India
US
15
EU
10
China
5
0
10,000
20,000
30,000
40,000
50,000
US
Brazil
0 India 10,000
Real GDP per capita (US$)
3.0
Nickel
2.5
Taiwan
40,000
50,000
Natural Gas
US
EU
kcm/capita
kgs/capita
30,000
2.0
2.0
Sth Korea
1.5
Japan
1.0
0.0
20,000
Real GDP per capita (US$)
2.5
0.5
Japan
Russia
Brazil
0.0
0
Sth Korea
China
0 India 10,000
US
20,000
30,000
1.0
0.5
EU
Russia
Brazil
1.5
40,000
0.0
50,000
Russia
China
Japan
Taiwan
Brazil
0 India 10,000
Real GDP per capita (US$)
Sth Korea
20,000
30,000
Real GDP per capita (US$)
Source: ANZ Research
9
40,000
50,000
Despite very low per capita consumption, China and India already
dominate global commodity demand – by 2015 both countries will be
consuming over 50% of the world’s iron ore, steel and copper
China & India Global Market Share of Demand
US & Europe Global Market Share of Demand
% global share
% global share
100
100
90
90
80
80
over 50% mkt share
70
Iron ore
70
C opper
60
60
Nickel
Steel
50
50
C opper
40
30
Nickel
20
LNG
Steel
40
30
LNG
20
Iron ore
10
10
under 20% mkt share
0
0
01
03
05
07
09
11F
13F
01
15F
Note: Seaborne iron ore, coking coal & thermal coal
Sources: ANZ Research
10
03
05
07
09
11F
13F
15F
The past 10 years has been a commodity “price” boom
In the next 10 years we expect it to be a commodity “supply” boom
Global Commodity Price & Volume % Moves (2000-2010)
%
%
Price
600
Global Commodity Price & Volume % Moves (2011-2015)
Price
70
Volume
Volume
60
500
50
400
40
33%
30
300
20
225%
200
10
7%
0
100
(10)
50
%
0
Iron ore C oking Gold C opper Thermal
C oal
coal
Oil
(20)
Nickel Steel
Alum'm
C oking Iron Nickel Thermal Alum'm Steel C opper
coal ore
coal
Years of Commodity production (on 2009 global reserves)
119
110
86
ROW
57
51
2
Australia
5
2
BauxiteThermal Iron
coal
50
1
2
45
41
29
16
1
3
Met Uranium Gas
coal
Source: ANZ Research
11
1
Nickel C rude C opper Gold
oil
Gold
Oil
3. Case Study – Australia’s mining boom
Australia set to spend just under A$2.0 trillion in natural resource investment
in the next 20 years (top down estimates)
• Australia’s resource investment
response will increase from an
average $25bn per annum in the past
decade to an average $90bn per
annum over the next 5 years
Total investment 2010 - 2030
102
Total soft commodities
$0.2 trillion
Mining expansion
$0.8 trillion
Mining replacement
$0.8 trillion
Total
$1.8 trillion
90
83
79
Real 2010 A$ billion pa
84
•Total soft commodities
65
•Mining Expansion
34
•Mining replacement
•05
Share of GDP
•10F
5.0%
•13F
•15F
7.1%
5.4%
•20F
•25F
•30F
4.5%
4.1%
3.8%
Source: Port Jackson Partners
12
A surge in mining, energy and infrastructure investment has commenced
Our bottom-up analysis shows total spending expected over the next 5-years has
been revised up 50% in the past year
$Abn
140
120
100
Communications
Hospitals
Water Supply & Sewerage
Manufacturing
Electricity
Gas Pipelines
Mining
Energy
80
Airports
Rail
60
Ports
Roads
40
20
0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Sources: Access Economics and ANZ
13
Advanced Minerals & Energy Investment Projects
Source: ABARES
14
Mining-related investment and construction activity is already ramping up and
the pipeline of planned projects keeps growing (WA, QLD, NT the major
beneficiaries)
Energy Investment (% OF GDP)
Business Investment Profile
60
50
Annual % change
40
30
20
10
0
-10
Queensland
-20
Australia (excluding - Queensland)
Australia (excluding - Queensland and Western Australia)
-30
01
02
03
04
05
06
07
08
09
10
11
Major Project investment pipeline
Major projects, by status
60
Current
projects
Past projects
300
Future projects
Non-Resource States
Resource States
50
250
40
200
$ billion
Value of projects $bn (current prices)
350
150
100
30
20
50
10
Sep-06
Sep-07
Sep-08
Sep-09
Sources: ABS, Deloitte Access Economics, ANZ
Sep-10
Possible
Under
Consideration
Commited
Under
Construction
Completions
Deletions
0
0
NSW
2010
Sep-11
15
VIC
2011
SA
TAS
2012
QLD
2013
WA
2014
NT
2015
With a fully employed economy, consumption needs to ‘make way’ for
the surge of investment spending
62
22
5
60
20
4
58
18
3
56
16
54
14
1
52
12
0
50
2
Qld
floods
GFC
-1
00
01
02
03
04
05
06
GDP Q/Q change
07
08
09
10
11
12
Forecasts
% of GDP
Forecasts
48
8
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Household Consumption (lhs)
GDP Y/Y change
16
10
Business investment (rhs)
% of GDP
% change
6
The traditional mining states (QLD and WA) are performing much
more strongly than the large South-Eastern states (Vic and NSW)
State final demand plus net exports (4 - quarter moving average)
12
10
8
Annual % change
6
4
2
0
-2
-4
-6
NSW
VIC
QLD
WA
-8
06
07
08
09
17
Sources: ANZ, ABS
10
11
The mining, energy and infrastructure boom
Western Australia is 15% of the national economy but over half the
investment boom!
Real value of engineering constructional and non-residential building work yet to be done
Work yet to be done (A$ billions)
70
NSW
SA
60
VIC
WA
QLD
50
40
30
20
10
0
00
Sources: ANZ, ABS
01
02
03
04
05
06
18
07
08
09
10
11
Australian labour market
Huge industry changes mask overall softness in employment growth last year
Hospitality
Transport & post
Retail Trade
Wholesale Trade
Manufacturing
Arts & Recreation
Administrative services
Construction
Utilities
Professional services
IT, media & telecomms
Agriculture
Finance & Insurance
Education
All Industries
Rental & Real Estate
Personal & Other
Public Admin.
Mining
Health
-60
Net employment change,
12 months to February 2012:
+22k
-50
-40
-30
-20
-10
0
'000 change
Sources: ANZ, ABS
19
10
20
30
40
50
Inflation
The currency is playing a critical role in keeping inflation contained.
Pressures are likely to build again in 2013
CPI by Category (Q4 2011)
ANZ Inflation forecasts
Education
Insurance & financial services
Transport
Housing
Health
Alcohol and tobacco
Clothing and footwear
Food
Communication
RBA Target Band
Recreation
Furnishings, household equip. &
services
-2
0
2
4
6
8
10
12
% y/y
Goods vs Services Inflation
Tradeables & Non-tradeables
20
The Australian dollar is heavily influenced by trends in commodity prices and
is playing a central role in the determining economic outcomes in Australia
AUD vs ANZ real commodity price index
3.0
8
7
2.5
6
5
1.5
4
3
1.0
2
0.5
1
0.0
1900
0
1920
1940
AUD/USD (nominal)
Source: USGS, ANZ
1960
1980
2000
ANZ Real Industrial Commodity Index
21
Index
AUD/USD
2.0
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