Quieter On The Boom Front, Just For Now
Sydney Morning Herald
Saturday October 11, 2008
IT'S still too early for the dust to settle in the world's share and property markets, but the new global rich lists published by business magazines near the year end are set to show some drastic haircuts in billionaire wealth.
No one is immune, from uber-master of the universe Bill Gates, whose holding in Microsoft Corp has lost 36 per cent of its value since a peak at the start of the year, to Third World tycoons, such as the New Delhi property king K. P. Singh, whose net worth is down by two-thirds.India, which has recently produced four global top 20 billionaires against just one from Greater China (Hong Kong's Li Ka-Shing), has had some of the biggest paper wealth losses, obscured somewhat by the version of the Indian rope trick allowed in its sharemarkets, whereby those controlling companies can churn their own stocks through myriad investment companies.The position of one Indian tycoon, Lakshmi Mittal, should be of special interest to Australia. He is the steel baron who has been prowling the world for decades, buying up ailing steel mills from Trinidad to Kazakhstan. In 2006 he took control of the European steel firm Arcelor, creating a giant with 116 million tonnes of steep capacity or 10 per cent of world output.The share price of ArcelorMittal has halved since July. If an Indian steel giant is being so sharply downrated, does this mean one of the big props of demand for Australian resources is being removed?Actually, no. Mittal has hardly any steel production in India itself, though he has been rushing to remedy that with two huge new steel plants in the country's eastern mining states costing a total $US20 billion ($29 billion). He has also been very much a "non-resident Indian" or NRI. He keeps his company based in London, far away from the inspectors of India's lingering Licence Raj, though now he is high-profile in Delhi, paying a lot of attention to Sonia Gandhi and her children, the dynastic heads of the ruling Congress Party.India itself is likely to continue as a strong growth economy. The International Monetary Fund's forecast this week sees growth continue to slow through the current global crisis, from the 9.8 per cent peak in 2006, to 7.9 per cent this year and 6.9 per cent in 2009. One of its best economic observers, T. N. Ninan, sees some strength coming from falling oil prices (and inflation) and the rupee's recent fall. It has more than enough foreign reserves to cope with any run on portfolio investments or NRI deposits.Nor does Mittal have much steel production in China, though his empire of clapped-out steel mills in countries with low or zero pollution controls was lifted by the voracious Chinese demand for steel in the pre-Olympic years. His three plants in Kazakhstan, for example, were moving steel by rail across to Far East ports, then by sea into China's coastal boom regions.China's domestic steel market has slumped sharply in recent months, and top-up external suppliers such as ArcelorMittal are among the first to feel the cutbacks in orders. Last week Mittal sent a third of his Kazakh workforce home on half-pay for a fortnight.This week four of the big Chinese state steel firms said they were cutting production by 10 to 20 per cent until year end, to stop a slide in prices. Spot prices for iron ore have slumped by one-third, and one of Australia's smaller ore exporters, Mount Gibson Iron, has been asked to delay shipments. Is the Pilbara boom over?Probably not, if some of Australia's top analysts of regional trade are right, though the bargaining position that allowed BHP-Billiton and Rio Tinto to exact massive price increases has been sharply eroded. The massive fall in the Australian dollar will cushion the impact. Peter Drysdale, an economist at the Australian National University, pointed out that Chinese growth will be coming off recent highs of 11 or 12 per cent, but only down to about 9 per cent this year. With export orders falling, the Government is priming domestic demand to sustain growth.Our ambassador to Beijing, Geoff Raby, is currently home on a speaking tour. He stressed the urgency with which China's leaders still see the need to improve living standards as the population shifts from villages to urban settings. Even if growth drops back to about 7.5 per cent, that still works out at a Chinese economy 2.4 times bigger than it is now by 2020, and more than four times bigger by 2028.Raby also has the sobering forecast than despite concerted attempts to reduce energy dependence on coal, now 68 per cent and consuming well over 2 billion tonnes a year, China will still be about 60 per cent coal-fuelled in 20 years. The China boom, and its attendant environmental questions, may have hardly begun.
© 2008 Sydney Morning Herald
