Australian Economic News

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Aug 14 2015 at 1:52 PM Updated Aug 14 2015 at 1:52 PM

Australian vitamins selling out in China, as 'clean and green' demand soars

Now retired tennis champion Li Na is hitting winners for Blackmores, and both Swisse and ASX aspirant Vitaco are benefiting. Reuters
by Simon Evans

China's huge appetite for "clean and green" vitamins is giving Australian health supplement makers a healthy boost.

Blackmores' shares have doubled to $91 in the past six months to give the group an ASX market capitalisation of $1.5 billion. Swisse Wellness is experiencing a revenue surge as its tests the market for a potential $1 billion-plus sale, and Vitaco is preparing to a stock exchange list in a $250million float.

One of the main drivers of growth is the appetite for "clean and green" vitamin and health supplements in China. Thousands of online shoppers in Shanghai and Beijing are buying the trusted Australian and New Zealand brands, with sales of some Australian brands jumping 10-fold in 12 months.

Chinese expatriates living in Australia are also buying vast amounts and shipping them back to relatives and friends in China who've been un-nerved by food contamination scandals locally in frozen berries, infant formula and milk powder. Tourists from China visiting Sydney and Melbourne are also snapping up large volumes.

Ryan Lin, senior industry analyst with IBISWorld, says many city-based retailers who stock Swisse and Blackmores, often sell out of product. "We're seeing a lot of demand from Asia because of the reputation of Australia's clean manufacturing of food products." It may be a long time before sales of the Wagner Green-Lipped Mussel capsules which form part of the Vitaco stable begin to rival the revenue from iron ore sales from the Pilbara region in Western Australia, as giants BHP Billiton, Rio Tinto and the private operations of billionaire Gina Rinehart claw the lion's share of Australia's $50 billion-plus in annual iron ore exports.

But the market for vitamins and health supplements is vast in China and has doubled to more than $17 billion annually in the past seven years. Competition is fierce as big multi-nationals around the world clamour for a bigger slice, and the Australian operators are enjoying the after-glow.

Blackmores shares have jumped from below $45 in February to about $91, and in an update in May it referred to Asian sales being up 44 per cent.

Once Thailand sales were stripped out, the rise in Asia was 90 per cent. Goldman Sachs analyst Andrea Chong in a research note on July 14 said the share price surge was largely because Blackmore's sales in China had jumped 10-fold in a year and were now at an annualised $100 million, making up 20 per cent of the company's total sales.

She concluded Blackmores could achieve a 10 per cent share in the vitamins e-commerce market in China by 2017, with China sales making up 30 per cent of Blackmores' total by then.

Swisse executive chairman Trevor O'Hoy has also pointed to the extraordinary demand from China for a strong lift in sales, and believes the trend will gather strength.

Now Vitaco is preparing to ride the wave. The business was formed in 2007 through the merger of Healtheries and Nutra-Life. Private equity firm Next Capital holds 71 per cent and the firm's brands include Nutra-Life, Wagner and Abundant Earth.

It runs three manufacturing plants in Auckland, New Zealand. It also make sports nutrition products. Investment banking firms Citigroup and JP Morgan are doing the rounds of fund managers on a roadshow, with the business expecting $27.5 million in earnings before interest and tax, depreciation and amortisation for 2015-16.

IBISWorld's Mr Lin says when the GFC hit in 2008 people backed off spending on high-quality vitamins and health supplements. But the focus on health, well-being and fitness, the expansion of space allocated to vitamins in big supermarket retailers Coles and Woolworths, and rise of category killer chains such as the Chemist Warehouse have fuelled strong growth. "Being in supermarket aisles means people buy them like they do other grocery items," he says.

A report by IBISWorld earlier in 2015 outlined there were 83 manufacturers of vitamins and health supplements in Australia in a market at the manufacturing level worth $885 million. Swisse held an estimated market share of 22 per cent, and Blackmores held 21 per cent.

Blackmores has 350 employees based in Asia and signed a deal in April this year in Shanghai with retired tennis star Li Na, who is now a "brand ambassador" for Blackmores. Li Na has enormous cache in China because she was the first Chinese tennis player to win a Grand Slam title, victorious in the 2011 French Open and the 2014 Australian Open.

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Australia’s forgotten consumer is making a comeback
THE AUSTRALIAN AUGUST 17, 2015 12:00AM

Adam Carr

Chief Economist Eureka Report
Sydney
As the debate over the strength of Australia’s economy rages, there are growing signs that a key and often forgotten force is awakening. That is, the good old Australian consumer.

JB Hi-Fi’s recent result captured this better mood perfectly, with sales that were nearly 5 per cent higher over the year and earnings that were 6.4 per cent higher. All the metrics were good — gross margin, EBIT margin etc. As JB Hi-Hi’s CEO Richard Murray noted on Sky News last week “if “consumer sentiment is ticking up bit, that’s a good outcome for us”.

Of course, and to some extent, the government’s decision to lift write-offs for small business helped to boost recent sales. Yet it would be too simplistic to attribute this performance solely to the temporary impacts of that policy.

Or confine it to one firm. The trend is broader and firms such as Super Retail Group and Harvey Norman both reported strong sales earlier this year (forecast sales are also expected to be solid).

Similarly, the rebound is supported by macro data from the Australian Statistician. Total sales are up nearly 5 per cent, close to the average, which rises to 6.1 per cent excluding food.

Why exclude food? Because for some bizarre reason food sales are very weak — a fact at odds with population growth, expanding waistlines and the experience in other Anglo nations. Whatever the case, the growth rate of consumer spending (excluding food) is well above average — almost twice the historical norms so far in 2015. So really, when we talk about the consumer rebound, the reality is we’re not facing down modest growth — a tentative pick-up.

What we’re witnessing is very strong growth and a clear signal that the Australian consumer is back — if a little hungrier than they perhaps once were.

Looking further ahead, prospects are bright and there is every reason to expect this strong spending rebound to continue. There is certainly no reason to think that it would weaken.

Sure a lot of the commentary and many economic talking heads are more than happy to tell you how weak things are. That doesn’t gel very well with everyday experience though. Jobs growth is strong for a start — and the unemployment rate is substantially lower than where people thought it would be by now.

More to the point, and while debt levels are high for some, heavily indebted consumers are actually in the minority. In any case, for those who do carry debt, the interest servicing costs on that debt are very low. The lowest in about a decade. For everyone else — savings rates are high.

Now admittedly there are a couple of developments worth watching.

Wages growth is low for instance and this has a number of people alarmed about the outlook for consumers. That’s not quite the right way to look at things though. Largely that’s because wages growth isn’t disastrous. Even at a record low, we are talking growth rates only 0.9 per cent below average.

Similarly, consumer confidence has been volatile — currently around average levels. It’s important to note however, that this volatility doesn’t appear to have impacted the consumer decision to spend money.

Car sales are surging for instance — up 6 per cent for the year on the latest figures.

Amid a positive economic backdrop — wild swings in consumer confidence simply reflect sensitivities around negative news flow. The constant bombardment of an increasingly incorrect pessimistic narrative.

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Lower dollar helping economy adjust: RBA
JAMES GLYNN DOW JONES AUGUST 18, 2015 11:47AM

Recent falls in the Australian dollar are helping the economy adjust from a decade-long period of investment toward stronger growth in exports, the Reserve Bank says in the minutes of its August 4 policy meeting.

“Members noted that an accommodative monetary policy setting remained appropriate given the forecasts, while observing that the Australian dollar had been adjusting to the shift in activity in the resources sector from the investment production phase,” it said.

“Further depreciation of the Australian dollar was expected to impart stimulus to the economy through stronger net exports,” it added.

The comments further soften the Reserve Bank of Australia’s rhetoric around the Australian dollar, after months of warning the currency was too high, especially in light of plunging coal and iron prices.

The weaker Australian dollar was also helping to lift exports in services industries like tourism, it added.

“Net service exports had made a strong contribution to output growth over the past year, supported by the earlier depreciation of the exchange rate,” it said.

The Australian dollar has fallen to its lowest level in six years in recent months.



Still, the outlook for interest rates remains dependent on data flow in an economy otherwise growing sluggishly and one where inflation is set to remain benign.

“New information about economic and financial conditions would continue to inform the board’s assessment of the outlook,” it said.

The RBA has cut interest rates twice this year in response to slowing growth and large falls in commodity prices. Financial markets have priced in some risk a further cut will be needed over the next year.

The RBA said that while business conditions have improved in recent months, surveys of investment intentions suggested ongoing weakness for some time yet.

However, very low wages growth was encouraging businesses to hire more workers and keep the jobless rate at lower levels than expected, the central bank said.

Dow Jones

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Flood of foreign funds keeps economy buoyant: Warwick McKibbin
THE AUSTRALIAN AUGUST 19, 2015 12:00AM

David Uren

Economics Editor
Canberra
Economy rises on foreign funds

Professor Warwick McKibbin says ‘Australia is now seen as an ­attractive place to hold assets’. Picture: Stuart McEvoy. Source: News Corp Australia
Australia’s economy is shrugging off the slump in commodity prices and falling business investment thanks to a flood of foreign money pouring into the country looking to take advantage of our higher ­interest rates and AAA credit ­rating.

The ANU’s Warwick McKibbin says Australia is repeating its performance of the late 1990s, when money fleeing Asia helped us to sail through the Asian financial crisis with growth rates reaching 5 per cent. Professor McKibbin, who served on the Reserve Bank for a decade until 2011, told The Australian that the inflow of foreign capital could ­deliver another sustained burst of economic growth, even if China’s economy weakens further.

“There has been a global portfolio shift. The risk in the world and the return on assets has meant that Australia is now seen as an ­attractive place to hold assets,” he said.

One effect of Australia’s new global popularity is that the ­exchange rate has not fallen as far as the Reserve Bank would like or as the collapse in prices for major exports would warrant. However, Professor McKibbin said the foreign capital influx was boosting asset prices, including companies, commercial property and housing. “That has provided a wealth effect, which is why domestic ­demand hasn’t collapsed as much as you would expect,” he said.

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“Real shifts in global portfolio allocation can be significant and lead to a long and sustained burst of GDP growth.”

The Reserve Bank yesterday released minutes of its August board meeting showing it believes the worst may be over, with unemployment possibly falling over coming months. “The Australian Bureau of Statistics measure of firms’ job vacancies was consistent with the unemployment remaining around current levels or even declining a little further in the months ahead,” the minutes said. “Domestically, economic activity had generally been more positive over recent months.”

Professor McKibbin said Australia’s good economic performance could continue, even if China, which takes almost a third of Australia’s exports, slowed further. The Asian financial crisis in 1997 and 1998 showed that changes in the flow of capital could have a bigger effect than shifts in trade. Including China, Asian growth slumped from 9 per cent to 2.7 per cent, with the major Southeast Asian countries contracting almost 10 per cent. However, a big fall in the Australian dollar generated a boom in the domestic economy.

The latest balance of payments figures show that in the year to March, $65 billion was invested by foreign companies in their Aus­tralian operations, while governments borrowed $38bn.

Professor McKibbin said the flow of capital into Australia could increase following the expected move by the US Federal Reserve to start raising rates before the end of the year. Many Asian nations are carrying heavy private and public sector debts that have been sustainable while the world is awash with liquidity, but will become a source of instability as rates rise. “If you are going to div­ersify out of these countries, you would go to the US, Canada, Australia or New Zealand,” he said.

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Construction work rebounds for June quarter

• BUSINESS SPECTATOR
  
• AUGUST 26, 2015 1:41PM
  

Michael Roddan
[Image: michael_roddan.png]
Reporter

[b]Construction work done in Australia has rebounded in the June quarter, defying analyst expectations, after declining at a faster pace than predicted in the March quarter.[/b]
Data from the Australian Bureau of Statistics showed total construction work for the three months to June increased 1.6 per cent to $49.81 billion, on a seasonally adjusted basis.
The result beats the median forecast among economists surveyed by Bloomberg, who predicted a 1.5 per cent drop.
June’s figures follow a surprise 2.4 per cent decline during the March quarter against predictions of a drop half that size.
However, construction work done is still 3.3 per cent lower than at the same time a year ago.
The main driver in this quarter’s positive result was the increase in engineering work, including mines, roads and bridges, which rose 5.6 per cent quarter-on-quarter.
Over the past year, however, engineering work done has plunged 8.8 per cent, as mining investment dries up.
Total building work done on homes and non residential buildings such as offices and shops shrank 2.6 per cent in the quarter, the ABS said.
Over the year to June, residential construction has surged 7.4 per cent, signalling that record-low official interest rates are supporting a small boom in the home building market.

[BlueKelah]

Aussie tipped to dip below 60 US cents

If you're thinking about that trip to the US, you might want to do it sooner rather than later.
Deutsche Bank's Australian chief economist Adam Boyton says continued soft demand for resources and slower growth in China are among the factors that could force the Australian dollar below 60 US cents to its lowest value against the greenback since at least early 2003.
The Aussie dollar has already tumbled about 20 per cent in the past year and is now hovering just above 70 US cents.
Mr Boyton said Deutsche predicted 18 months ago that the dollar would hit about 65 US cents by the middle of 2016, a statement he said is "looking less stupid by the day".
"I wouldn't discount the currency moving into the 50s," Deutsche Bank's Australian chief economist Adam Boyton said.
"I'm not saying in the next 24 hours or anything like that but, as a big picture adjustment, that wouldn't seem unreasonable to me.
"Particularly if you think you're looking at a structural slowing in China, the commodity structure will remain under pressure for some time."
The low exchange rate can help boost exports by making them cheaper, increase tourism from overseas and have a positive effect on retail numbers by pricing some Australians out of foreign holidays.
But the effect isn't entirely positive.
"This fall in the currency is having an enormous effect on the competitiveness of the economy," Mr Boyton said.
"Unfortunately, it makes us more competitive by making us poorer, as opposed to productivity, which makes us competitive without making us poorer at the same time."

[greengiraffe]

Aussie tipped to dip below 60 US cents

If you're thinking about that trip to the US, you might want to do it sooner rather than later.
Deutsche Bank's Australian chief economist Adam Boyton says continued soft demand for resources and slower growth in China are among the factors that could force the Australian dollar below 60 US cents to its lowest value against the greenback since at least early 2003.
The Aussie dollar has already tumbled about 20 per cent in the past year and is now hovering just above 70 US cents.
Mr Boyton said Deutsche predicted 18 months ago that the dollar would hit about 65 US cents by the middle of 2016, a statement he said is "looking less stupid by the day".
"I wouldn't discount the currency moving into the 50s," Deutsche Bank's Australian chief economist Adam Boyton said.
"I'm not saying in the next 24 hours or anything like that but, as a big picture adjustment, that wouldn't seem unreasonable to me.
"Particularly if you think you're looking at a structural slowing in China, the commodity structure will remain under pressure for some time."
The low exchange rate can help boost exports by making them cheaper, increase tourism from overseas and have a positive effect on retail numbers by pricing some Australians out of foreign holidays.
But the effect isn't entirely positive.
"This fall in the currency is having an enormous effect on the competitiveness of the economy," Mr Boyton said.
"Unfortunately, it makes us more competitive by making us poorer, as opposed to productivity, which makes us competitive without making us poorer at the same time."

The beautiful country's tourism, education and other services industry and even the high quality agricultural/food exports are likely to be beneficiaries...

Its free mkt mechanism at work...

Cut backs on overseas spendings will help boost local demand...

[greengiraffe]

Housing construction to decline, predicts BIS Shrapnel

• THE AUSTRALIAN
  
• SEPTEMBER 04, 2015 12:00AM
  

0

Kylar Loussikian
[Image: kylar_loussikian.png]
Journalist
Sydney

[Image: 745901-b3bcd6ec-520b-11e5-8ffe-a0d4079a7abb.jpg]
Residential construction for the year ahead is expected to decline 3 per cent, according to BIS Shrapnel.Source: Supplied
[b]A slowing Australian economy could be worsened by a lack of growth in the previously strong construction sector, with forecasts pointing to weaker home building numbers in the coming year.[/b]
However, low interest rates will continue to support an elevated rate of construction, while federal and state governments will support growth through the short term, with the value of pipeline of infrastructure projects still to be awarded nearing $25 billion.
Residential construction for the year ahead is expected to decline by 3 per cent from $61.9bn to $60bn, according to BIS Shrapnel forecasts, while non-residential commencements will improve by 7 per cent, rising from $30bn to just over $32bn. “The two will roughly cancel out and the net effect will be zero growth overall in building starts for the current financial year,” BIS Shrapnel analyst Kim Hawtrey said.
“Accordingly the industry, which has boosted the Australian economy during the past two years, driven by phenomenal home building, will taper off as a source of economic growth from this point on.”
The warning comes as the latest figures show Australia’s GDP rose 0.2 per cent over the three months to the end of June, just 2 per cent for the full financial year, the weakest growth since 2013.
However, some firms remain upbeat about prospects for apartment construction, given the number of approvals and development pipelines of major developers.
CSR, which held an analyst day on Wednesday, expects apartment construction to remain strong for two years because of lead times from approval to construction. Approvals for detached dwellings, on the other hand, slowed last year.
Building approval figures released by the Australian Bureau of Statistics on Wednesday showed a seasonally adjusted decline of 3 per cent to 9322 for detached houses in July, while apartment approvals grew 6.1 per cent to 9087.
CSR will pursue a strategy to diversify its exposure beyond detaching housing, including renewed focus on the company’s Viridian glass business.
Viridian general manager Peter Moeller said he aimed to grow market share in the commercial development segment, which now accounts for 45 per cent of total processed glass demand, from the historical 30 per cent to 40 per cent range.
The company is also hoping to increase the market share of its AFS Logicwall and Rediwall businesses, which target apartment developments, from 6 per cent to 20 per cent.
Public spending, which yesterday was widely credited from keeping the June growth figure above zero, is expected to grow modestly for infrastructure projects, with Goldman Sachs forecasting 3.3 per cent annual growth between now and 2018.
More than $39bn in infrastructure projects are expected to be awarded in the coming years, with about $4bn to be awarded before the end of 2015.
Public infrastructure spending has fallen after peaking in 2010, but future growth will be offset by a continuing decline in private oil and gas project construction.

[greengiraffe]

• Sep 7 2015 at 10:18 AM 
   
  
  
•  Updated Sep 7 2015 at 10:18 AM 
  

Construction rises in August as new orders strengthen across all sectors

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[img=620x0]http://www.afr.com/content/dam/images/g/i/v/6/w/m/image.related.afrArticleLead.620x350.gjgj4r.png/1441585138049.jpg[/img]The Performance of Construction Index hit its highest reading in almost a year. Michele Mossop
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by Michael Bleby
Construction picked up in August as new orders strengthen in all sectors, including the beleaguered commercial and engineering sectors.
The Performance of Construction Index jumped 6.7 points to 53.8 last month, its highest reading in almost a year, as continued strong residential work was bolstered by positive signs in the other sectors.
It was the first time the headline measure cleared the 50 level that indicates growth in nine months. A reading below 50 means contraction, while 50 indicates no overall change. 
The sub-index for new orders, a leading indicator, leaped 12.2 points to 57.6, its first time above the 50 threshold in five months and the highest level since November 2013, when it was 58.5, the report published by the Australian Industry Group and Housing Industry Association showed. 

"Continued strength in the residential sub-sectors and a lift in conditions in commercial construction underwrote the welcome return to expansion in the national construction sector during August," Ai Group Head of Policy, Peter Burn said.
The positive news from these sub-sectors was sufficiently strong to outweigh the entrenched contraction in engineering construction associated with the winding-down in mining-related projects."
New orders in all sectors grew, led by apartments, the sub-index for which jumped 10.8 points to 60.9.
"This suggests that the existing pipeline of apartments to be built remains at an elevated level and is expected to support further apartment building activity in 2015-16," the report said. 


New orders in the house-building sector returned to growth in August after contracting in July, as the sub-index rose 9.4 points to 56.5, the highest rate of growth since October 2014. 
Encouragingly, commercial construction also showed an expansion in new orders. That sector's new orders sub-index rose 6.2 points to 53.7 points, the highest level since October 2014, when it was 55.1. Engineering construction new orders posted their first return to growth in 20 months. The sub-index registered 52.6, up 10.2 points from July.
"Some respondents attributed this month's increase to new infrastructure work which softened the impact of a diminishing pipeline of mining-related projects," the report said.

[greengiraffe]

Western Australia in $22bn mining downturn

• AAP
  
• SEPTEMBER 11, 2015 4:03PM
  

[Image: 066479-b56214b2-584b-11e5-81af-05aeacc1e5bf.jpg]
Processing at the Roy Hill mine — one of the WA projects soon to come online. Source: Supplied
[b]The value of Western Australia’s resources industry has plunged almost 20 per cent in the past year as iron ore and oil prices slumped.[/b]
Sales in the state’s all-important minerals and petroleum industry fell by $22.5 billion, or 19 per cent, to $99.5 billion in 2014/15 after reaching a record $122 billion in 2013/14, statistics released by the West Australian Department of Mines and Petroleum (DMP) show.
And while the state has an estimated $171 billion worth of resources projects under construction or committed to development, the DMP has foreshadowed investment could fall sharply next year as the massive $54 billion Gorgon liquefied natural gas (LNG) project and the $10 billion Roy Hill iron ore project come online.
“The outlook for major projects will decline sharply during the next 18 months as several major projects are completed,” the DMP said in a statement.
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Construction of Gorgon and Roy Hill is expected to be finished later this year, resulting in almost $80 billion dropping out of the major project figures.
Over the past year West Australian iron ore export volumes grew by 95 million tonnes to 719 million tonnes as the big mining companies boosted production.
But sales of the nation’s most valuable export fell 27 per cent to $53 billion, down from $74 billion the previous year due to steep price falls.
LNG sales also declined, fetching $13.8 billion in the year from $14.4 billion the previous year, despite increased volumes.
Still, the weakening Australian dollar helped offset falling commodity prices following a period of investment growth in recent years, the DMP said.
The release of the figures comes as BHP Billiton’s plans to drill for oil and gas in an unexplored area off Western Australia were touted by the state’s government.
BHP’s Petroleum president Tim Cutt told investors this week that four survey leads from the Beagle sub-basin north of Dampier each had a potential recovery of more than 400 million barrels of oil.
West Australian mines and Petroleum Minister Bill Marmion said the company’s planned drilling in the area in 2018 provided an insight into Western Australia’s oil and gas exploration potential.
“It showcases to international investors that WA is one of the few accessible places left in the world for large discoveries,” Mr Marmion said in a statement.
Western Australia wants the oil and gas sector to expand after the government went into the red for the first time in 15 years, booking a deficit of $1.3 billion for 2014/15, following a dramatic plunge in iron ore prices and a record low GST share.
AAP