The Big Picture. Long-Term Trends in Global Infrastructure Investment and Commodity Prices. Warren Hogan. Chief Economist.

Transcription

1 The Big Picture Long-Term Trends in Global Infrastructure Investment and Commodity Prices Warren Hogan Chief Economist May 212

2 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

3 1. Infrastructure spending Is there an infrastructure cycle? Or just periodic bouts of under-investment (% of GDP) US infrastructure spending A 25/3 year cycle? Average = 2.5% of GDP Sources: ANZ, BEA WWII Under-investment

4 A clear under-investment in the 198/9s Australian infrastructure spending data back to the 196s highlights a similar pattern to the US % of GDP % of GDP Australia, lhs USA, rhs Sources: ABS, ANZ, BEA

5 The rise of the emerging economies A long-term view of the structure of the world economy 4 % of total global GDP India China Western Europe US 35 3 India China W. Europe US Source: Angus Maddison, ANZ Research 4

6 Emerging Asia incomes are rising strongly Bringing with it strong demand for primary commodities 5. Asia - Real GDP per Capita (USDth) China India Indonesia Source: ANZ Research, United Nations 5

7 Expect large changes in the urban population of many countries: India, China, Pakistan, Indonesia & the US! Urban Population (m) Change (m) Bangladesh China Hong Kong Republic of Korea India Pakistan Sri Lanka Cambodia Indonesia Lao People s Democratic Republic Malaysia Myanmar Philippines Singapore Thailand Vietnam United Kingdom United States Australia New Zealand Source: United Nations 6

8 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 Source: ANZ Research, BEA, World Bank US Infrastructure Spending, % GDP China Infrastructure Spending, % GDP (RHS)

9 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 US Infrastructure (left) ANZ Real Industrial Commodity Index (right) % of GDP Index NB. ANZ Real Base Metal Index includes Copper, Aluminium, Nickel, Zinc, Lead and Tin deflated using US CPI. Sources: RBA, ANZ, BEA 8

10 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 Steel Sth Korea 25 2 Copper Taiwan tonnes/capita.8 Taiwan Japan.6 China.4 EU Russia US.2 India Brazil. 1, 2, 3, 4, 5, kgs/capita 15 Sth Korea 1 EU China US 5 Russia Japan Brazil India 1, 2, 3, 4, 5, Real GDP per capita (US$) Real GDP per capita (US$) 3. Nickel Taiwan 2.5 Natural Gas US kgs/capita Sth Korea Japan kcm/capita Russia Sth Korea EU Japan China.5 EU Russia. Brazil US India 1, 2, 3, 4, 5,.5 Taiwan China Brazil. India 1, 2, 3, 4, 5, Real GDP per capita (US$) Source: ANZ Research Real GDP per capita (US$) 9

11 Despite very low per capita consumption, China and India already dominate global commodity demand by 215 both countries will be consuming over 5% of the world s iron ore, steel and copper China & India Global Market Share of Demand % global share 1 9 US & Europe Global Market Share of Demand % global share over 5% mkt share 8 7 Iron ore 7 Copper 6 5 Steel 6 5 Nickel 4 Copper 4 Steel 3 Nickel 3 LNG 2 LNG 2 Iron ore 1 1 under 2% mkt share F 13F 15F F 13F 15F Note: Seaborne iron ore, coking coal & thermal coal Sources: ANZ Research 1

12 The past 1 years has been a commodity price boom In the next 1 years we expect it to be a commodity supply boom Global Commodity Price & Volume % Moves (2-21) Global Commodity Price & Volume % Moves ( ) % % Iron ore Coking Gold Copper Thermal Oil Nickel Steel Coal coal 5 % Price Volume Alum'm % (1) (2) Coking coal Iron ore Nickel Thermal coal Years of Commodity production (on 29 global reserves) 33% 7% Price Volume Alum'm Steel Copper Gold Oil ROW Australia Source: ANZ Research BauxiteThermal coal Iron Met coal Uranium Gas Nickel Crude oil Copper Gold 11

13 3. Case Study Australia s mining boom Australia set to spend just under A$2. trillion in natural resource investment in the next 2 years (top down estimates) Australia s resource investment response will increase from an average $25bn per annum in the past decade to an average $9bn per annum over the next 5 years Real 21 A$ billion pa Total investment Total soft commodities $.2 trillion Mining expansion $.8 trillion Mining replacement $.8 trillion Total $1.8 trillion 9 84 Total soft commodities Mining Expansion 34 Mining replacement 5 1F 13F 15F 2F 25F 3F Share of GDP 5.% 7.1% 5.4% 4.5% 4.1% 3.8% Source: Port Jackson Partners 12

14 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 5% in the past year $Abn Communications Hospitals Water Supply & Sewerage Manufacturing Electricity Gas Pipelines Mining Energy Airports Rail Ports Roads Sources: Access Economics and ANZ 13

15 Advanced Minerals & Energy Investment Projects Source: ABARES 14

16 Mining-related investment and construction activity is already ramping up and the pipeline of planned projects keeps growing (WA, QLD, NT the major beneficiaries) Business Investment Profile Energy Investment (% OF GDP) Annual % change Queensland -2 Australia (excluding - Queensland) -3 Australia (excluding - Queensland and Western Australia) Major projects, by status Major Project investment pipeline Value of projects $bn (current prices) Past projects Current projects Future projects $ billion Non-Resource States Resource States 1 Completions Deletions Under Construction Commited Under Consideration Sep-6 Sep-7 Sep-8 Sep-9 Sep-1 Sep-11 Possible NSW VIC SA TAS QLD WA NT Sources: ABS, Deloitte Access Economics, ANZ 15

17 With a fully employed economy, consumption needs to make way for the surge of investment spending 6 Forecasts % change 3 2 % of GDP % of GDP GDP Q/Q change GFC GDP Y/Y change Qld floods Household Consumption (lhs) Business investment (rhs) Forecasts

18 The traditional mining states (QLD and WA) are performing much more strongly than the large South-Eastern states (Vic and NSW) 12 State final demand plus net exports (4 - quarter moving average) Annual % change NSW VIC QLD WA Sources: ANZ, ABS 17

19 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) NSW VIC QLD SA WA Sources: ANZ, ABS 18

20 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 Net employment change, 12 months to February 212: +22k ' change Sources: ANZ, ABS 19

21 Inflation The currency is playing a critical role in keeping inflation contained. Pressures are likely to build again in 213 CPI by Category (Q4 211) 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 % y/y Tradeables & Non-tradeables Goods vs Services Inflation 2

22 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 AUD/USD Index AUD/USD (nominal) ANZ Real Industrial Commodity Index Source: USGS, ANZ 21

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