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Thursday, April 16, 2015

Fears BHP Billiton, Rio Tinto shares will fall further as fund managers say no more money

Iron ore rally continues Iron ore had one of its best weeks of the year with prices up 13.5% during the week. Iron ore finished at US$57.81/t CFR China. The deferral of BHP’s Inner Harbour Debottlenecking project on Wednesday has seemed to boost sentiment around the commodity, sending signals that the Australian iron ore expansion may be slowing. Iron ore also rose on hopes of further stimulus in China and as iron ore port stocks in China fell 0.42Mt to 97.16Mt last week. The total number of drill rigs deployed onshore in the US fell from 954 to 932 last week. Rigs deployed in oil plays fell from 734 to 703, while rigs deployed in gas plays increased from 217 to 225. US oil rigs have now declined ~56% since reaching a peak in early October, as US oil producers respond to lower crude oil prices. WTI crude finished lower as US inventories continue to rise. Base metals posted strong gains on Friday as a string of weaker economic data sparked expectations of stimulus in China. Gold futures posted their largest losses in seven weeks as equity markets outperformed and as investors weighed on the likelihood of interest rate rises in the US. ================= Iron ore plunge stokes pressure for Australia rate cut Wed, Apr 01 21:56 PM EDT By James Regan and Wayne Cole SYDNEY, April 2 (Reuters) - Pressure is mounting for a cut in Australian interest rates as soon as next week as plunging prices for iron ore, the country's single most valuable export earner, punish both mining profits and government tax revenue. The Reserve Bank of Australia (RBA) holds its monthly policy meeting on April 7 and markets are wagering heavily it will follow up a February easing with another quarter point cut to an all-time low of 2.0 percent. In part any move would be aimed at lowering the Australian dollar, which would assist commodity producers exporting U.S. dollar-priced products. Westpac chief economist Bill Evans noted iron ore prices had fallen around 15 percent since the RBA's March policy meeting, while the local currency was only down a single U.S. cent. "That is why it will be important for the bank to maintain an easing bias when it announces the cut next week," said Evans. "It will maintain downward pressure on the AUD." Interbank futures <0#YIB:> imply a better than 60 percent probability of an April easing, and are fully priced for one by May. Indeed, investors are already wagering rates will fall to 1.75 percent before the year is out. RBA governor Glenn Stevens says Australia is struggling with the end of its mining boom, noting that past mining booms had almost all ended very badly for Australia, usually through runaway inflation followed by a major crash. But Stevens says the RBA will continue to support the economy. BLOW TO MINING PROFITS, TAX REVENUE Spot Iron ore .IO62-CNI=SI stood at $49 a tonne after plunging 3.9 percent on Wednesday - the weakest since the index was introduced in 2008 and could drop as low as $47, forecasts Westpac Bank. The decline had a deadening impact on mining shares with Fortescue Metals Group off 3 percent, while Atlas Iron fell 3.8 percent and BC Iron 4 percent. With little prospect of rising iron ore prices, as global supply continues to expand in the face of waning demand growth, miners are counting on lower oil prices, cheaper freight rates and a weaker Australian currency to turn a profit. Iron ore is Australia's single biggest export earner so the collapse in prices has been as big a blow to government tax revenues as to mining profits. A half-decade after insulating Australia from the worst of the global financial crisis, the giant mining state of Western Australia is being forced to defer iron ore royalties which underpin tens of thousands of jobs. Stephen Walters, chief economist at JPMorgan, cites estimates from Australia's Treasury that every $10 per tonne drop in the iron ore price cuts up to A$3 billion off the national budget. Iron ore prices have fallen 70 percent, putting the ultimate drag on revenue up to A$30 billion," said Walters." That has only intensified pressure on Treasurer Joe Hockey to come up with savings or tax raising measures in his annual budget due in May, while also ensuring that the drag does not harm an already sluggish economy. "With fiscal policy being tightened, the onus will be on monetary policy to provide the support the economy needs." (Editing by Michael Perry) ============ traditionally when you go into the bust type of the cycle it can last a long time," he said. by Kate Cowling Fund managers with large holdings of Australian resource companies aren't committing any more funds to the embattled sector, raising questions about whether share prices of our biggest miners including BHP and Rio Tinto have further to fall. Two staunch supporters of Australia's mining sector, Pengana Capital and Fidelity, are adopting a wait-and-see approach following comments from the Treasurer that iron ore could fall as low as $35 a tonne and a warning from global credit rating agency Standard & Poor's. Both Pengana Capital's senior fund manager Tim Schroeders and Fidelity portfolio manager Paul Taylor said they wouldn't be adding to existing holdings in BHP and Rio Tinto at current iron ore prices. Pengana manages around $2 billion mostly invested in Australian equities and includes BHP and Rio Tinto among its top five holdings. "We have enough," Pengana Capital's senior fund manager Tim Schroeders said. Fears BHP Billiton, Rio Tinto shares will fall further as fund managers say no more money Both Pengana Capital’s senior fund manager Tim Schroeders and Fidelity portfolio manager Paul Taylor said they wouldn’t be adding to existing holdings in BHP and Rio Tinto at current iron ore prices. Louie Douvis by Kate Cowling Fund managers with large holdings of Australian resource companies aren't committing any more funds to the embattled sector, raising questions about whether share prices of our biggest miners including BHP and Rio Tinto have further to fall. The prized commodity has lost more than half its value in a year, falling to a 10-year low of $US47.08 ($61.91) per tonne last week, as BHP and Rio Tinto hit the accelerator on iron production. Schroeders said he was watching for further price falls but had no immediate plans to buy. Fidelity portfolio manager Paul Taylor said his firm is currently slightly underweight to BHP and Rio Tinto combined, relative to their benchmarks. "It is a bit of an unusual period and we're happy with that positioning," he said. He said while Fidelity takes a long-term investment view and favours quality companies with low production costs, the price is worth keeping an eye on. "If the macro environment knocks really high quality companies around, often that's your opportunity," he said. "We think the right way to structure the portfolio is towards low-cost producers and away from high-cost producers" he said. "The low-cost producers in Australia are BHP and Rio. They are well positioned." The reluctance of traditional supporters of the sector to back the giants follows a horror week for the iron ore giants in which Treasurer Joe Hockey speculated that iron ore could fall as low as $35 a tonne. On Tuesday Standard & Poor's placed Australia's three biggest miners on negative credit watch and on Wednesday BHP shareholder Nikko Asset Management described the mining giant's progressive dividend policy as a "travesty" and a "bear trap". Nikko Asset Management's head of equities Brad Potter said his firm had a "very negative view" of iron ore. He said his pessimism was not a reaction to the recent price drops, but warning signs that started emerging 12-18 months ago. He said his primary hesitation with iron ore was how long the down part of the cycle will last. "The risk is traditionally when you go into the bust type of the cycle it can last a long time," he said. Share via Email Share on Google Plus Post on facebook wall Share on twitter Post to Linkedin Share on Reddit RELATED ARTICLES Fortescue continues high-speed cost cutting 0 min ago Iluka Resources reports slow start to the year Twiggy's fortune tipped to shrink BHP, Rio ore 'ripping heart out' of Australia: Fortescue BHP gets a zero-tax Singapore deal Contains:Infographics LATEST STORIES Fortescue Metals Group chief executive Nev Power says federal and state governments need to 'have a really hard look' at what is happening in the industry. Fortescue continues high-speed cost cutting 0 min ago Murray King Optus CFO commutes to work on his bike. Landlords wow cycling office workers Woolworths was quick to pull down its poorly thought out 'Fresh in our Memories' campaign, evoking Anzac images of a digger. 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Tell us your views. Your input is valuable to helping shape South Australia's Small and Family Business Strategy. 7 comments Anthony Kittel over 1 year ago The exemption of payroll tax on wages paid to apprentices and trainees assisted business to increase training and develop skilled staff. The incentive offset some of the hidden costs and risk in developing staff and hiring unskilled labour. This was a great initiative by Government and embraced by employers. Please consider the re-introduction of this incentive! Brett Mahoney over 1 year ago Payroll Tax Exemptions The introduction of the exemption of payroll tax on wages paid to apprentices and trainees in the 2011 State Budget was a very important initiative, however it is disappointing that it was removed the following year, particularly since it was removed without any consultation with the business community. Abolition of an important incentive for employers to recruit apprentices and trainees is far from being an ideal way to fill a Budget gap. Furthermore, it is likely to lead to reduced employment of apprentices and trainees and have a negative impact on levels of investment and economic activity. To ascertain the impact on the business community of the removal of the payroll tax exemption, a recent survey of South Australian businesses showed the following key results: Had the payroll tax exemption remained in place: – three quarters of businesses indicated they would have employed more apprentices, – two thirds of businesses indicated they would have employed more trainees. With the payroll tax exemption being removed: – three quarters of businesses indicated they would employ fewer apprentices, – 60 per cent of businesses indicated they would employ fewer trainees. − 80 per cent of businesses indicated that the removal of the exemption would hurt their profitability, − 60 per cent of businesses indicated that the removal of the exemption would negatively impact their investment levels. Brett Mahoney over 1 year ago Payroll Tax South Australia has the third lowest payroll tax rate in Australia, but the second lowest payroll tax free threshold. While the lower tax free threshold for payroll tax in South Australia means more businesses pay payroll tax in this State, the payroll tax system is relatively more efficient than other States, except Victoria. In addition, the relatively low rate of payroll tax results in medium sized and large businesses paying less payroll tax than their interstate counterparts on the same wages/salary bill. Raising the tax free threshold to $800,000 is the next step to reducing the payroll tax burden, followed by raising the threshold further and reducing the tax rate further once Budgetary circumstances allow. Brett Mahoney over 1 year ago South Australia should have the most competitive and efficient business tax system of all States and Territories in Australia. A low tax environment is vital for business to remain competitive, undertake investment, provide employment opportunities and facilitate a higher standard of living. Land Tax Further reforms are required to make the land tax regime more competitive: – reduce the maximum rate of land tax to 2.5 per cent, – increase the threshold level for this rate from $1.052 million to $2.7 million. These are the minimum first steps to achieving a more competitive land tax system. Further increases in land tax thresholds and cuts in land tax rates should be pursued as financial pressures on the South Australian Budget allow. In the absence of comprehensive national taxation reform this course of action continues to be recommended. Kelly Baker-Jamieson over 1 year ago As a South Australian small business with operations across multiple states, the costs of compliance are on the rise. Obvious examples are Workcover and Payroll Tax. I agree with the below comments highlighting the increasing costs of Workcover in SA and this needs urgent attention to ensure we can be as efficient as possible. Payroll tax compliance costs are also rising and our business was recently moved from annual to monthly contributions by the SA Government. Contributing monthly increases our administration costs vs a once off annual submission. It may seem small but when you multiple the effort across four different states (some monthly / some annual) it is a minefield of compliance to contend with. I would like to see the SA Government take the lead on red tape and give SA headquartered businesses the ability to submit their national workcover and payroll tax information to a local ‘clearing house’ facility. Opportunities to streamline compliance will allow us to get on with running our business and creating real jobs here in SA. Business Development Council over 1 year ago We have recently modelled implications to our Workcover premium due to potential claim costs via the online workcover calculator. It has led us to the startling realisation that we are financially better off to pay all medical bills out of our own pocket (just registering all incidents through Workcover). This is phenomenal considering that as an absolute minimum (even in the scenario of no claims to Workcover for 3 years) our industry pays approx 5-7% of payroll. This is untenable and needs investigation, benchmarking with other states and countries and rectifying to allow our precious manufacturing and construction jobs to survive. I am lead to believe that our premiums in SA are double that of many other states! Phil Sims over 1 year ago I was recently informed that psychological related Workcover claims have drastically increased in the last 2.5 years – more than 30% -for over 2x weeks lost time claims. It was the consensus of a group of HR professionals working for a number of SA businesses that a large factor behind this increase has been due to what industry considers the 1% rule. This means that if someone goes to their GP feeling depressed or anxious, and 1% or more of their depression or anxiety can be attributed to workplace stress, they can be entitled to a Workcover claim, regardless of what other stresses and trauma’s are going on in their life (family deaths etc). I appreciate this is a sensitive issue, but considering the amount of time a person spends at work- it is too easy to correlate work and any psychological trauma with this 1% or more “rule”. The rules around Workcover claim eligibility should to be reviewed as a priority. ====================================

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