Construction industry activity contracts in March: Economy Roundup

Activity in the Australian construction industry contracted during March due to slow activity in house building and a decline in orders for the first time in eight months, the latest figures from the Australian Industry Group-Housing Industry Association have revealed.

The AIG-HIA index revealed the apartment sector is continuing to suffer due to tight credit, and a cool-down in the engineering industry. The main measure of overall construction conditions fell 4.1 points to 48.7, under the 50-point level separating expansion from construction.

“The operating environment remained difficult in March with tight credit conditions, subdued client demand and project delays having adverse impacts on construction companies,” AIG associate director of public policy Peter Burn, said in a statement.

The survey’s index of house building dropped 11.6 points to 50 points, with the measure of apartment building up 3.5 points to 46.2.

“The fall in new orders in the house building and apartment sub-sectors comes at a time when there is already a shortage of housing and a growing gap between demand and supply.”
Additionally, new orders fell 5.3 points to 46, with the measure of employment dropping 0.6 points to 50.5.

In the resources sector, Rio Tinto has transferred to quarterly pricing of iron ore contracts, and is now the latest in the industry to drop the traditional method of annual price-fixing.

“Rio Tinto’s position reflects the recent structural shift in the iron ore market away from benchmark pricing,” iron ore chief Sam Walsh said in a statement. “Benchmark pricing only works if it reflects market fundamentals, otherwise the system would need to change,” Walsh added.

As reported by the Australian Financial Review, mining group Xstrata Coal has approached Macarthur Coal shareholders Posco and ArcelorMittal regarding a bid to rival the hostile takeover offer from US group Peabody Energy.

It is understood Xstrata, which is being advised by Macquarie Capital, is now offering the two companies the chance to access coal resources in Xstrata’s portfolios as part of any deal.

New Hope Corporation has also made a bid to acquire Macarthur in a 2.7-for-one share offer. It comes as the Takeovers Panel has knocked back an attempt from Peabody to delay a Macarthur shareholder vote on the US company’s acquisition of Gloucester Coal.

“New Hope believes the offer is superior to both the Gloucester transaction and the highly conditional, non-binding, indicative proposal put forward by Peabody Energy,” the company said in a statement to the ASX. “[The offer includes the] condition that the Gloucester transaction does not proceed”.

Stern Hu not to appeal 10-year jail sentence

In China, former Rio Tinto executive Stern Hu has decided not to appeal a court decision convicting him of accepting bribes and stealing company secrets. He is set to spend 10 years in jail.

“Mr Hu has decided not to appeal for a number of reasons, including his lawyers’ opinions,” lawyer Shi Keqiang told Reuters after a meeting yesterday. “This wasn’t a sudden decision on his part. It was something he had been considering since the beginning.”

Back home, the Australian sharemarket has opened slightly higher after solid Wall Street results, with several retailers posting higher-than-expected sales.

The benchmark S&P/ASX200 index was up 9.69 points or 0.2% to 4947.6 at 12.00 AEST, while the Australian dollar has also gained some ground to US92c.

ANZ shares have lost 0.2% to $25.14, with NAB gaining 0.2% to $27.66. Westpac lost 0.1% to $27.76, as AMP gained 0.6% to $6.40.

Also in the resources sector, Gindalbie Metals has signed the terms sheet and a mandate letter for a $US1.2 billion loan facility to support the Karara iron ore project in Western Australia, with the facility sourced from the China Development Bank and Bank of China.

“For Gindalbie it means that we are well on the way to being an iron ore producer next year and part of a joint venture that will generate annual revenue of about $AUS1 billion at start up production levels,” managing director Garret Dixon said in a statement.

“As the facility is based on an international interest rate benchmark, it provides a very good long-term arrangement for the project.”

Qantas Airways has said its own investigation into two former Jetstar executives prevented from leaving Vietnam since Christmas has cleared them of any responsibility for losses due to fuel-price hedging.

“Qantas has 100% confidence in the two employees and this confidence is based on its own investigation and analysis of the situation,” Qantas government and corporate affairs chief David Epstein told Business Spectator. He said former chief operating officer Daniela Marsilli, and former chief financial officer Tristan Freeman, were not involved in a $US31 million loss.

Authorities in Vietnam banned Marsilli and Freeman from leaving the country late last year while an investigation took place regarding losses within Jetstar Pacific – a joint venture between Qantas and the state-owned Pacific Airline.

Manufacturing solid in Britain, retail trade improves in US

Overseas, the British Office for National Statistics has revealed manufacturing output grew 1.3% during February after a drop of 1% in January, assisted by production in the food and beverage, electrical and optical equipment sectors.

Economy recovery was also on the agenda in the US, where top retail chains recorded rises in monthly same-store sales for March. Sales at stores open at least one year were up 9.1%, the largest monthly jump since the Thomson Reuters tracker began in 2000.

“The results were strong across all industry groups,” Ken Perkins, president of Retail Metrics, told Reuters. “It was clearly broad-based strength and suggests to us that it just wasn’t about the Easter holiday shift and the improved weather.”

The results surprised investors on Wall Street, where the Dow Jones Industrial Average gained 29.55 points or 0.27% to 10,927.07.