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Australia outperforms the world

AUSTRALIA’S competitive dollar will underpin the value of commodity exports this financial year, with earnings expected to rise 0.7 per cent from the previous period. The Australian Bureau of Agricultural and Resource Economics (ABARE) forecasts the value of agricultural and mineral exports as rising to $90.47 billion in the year to June, 2002.

This is despite the weak world commodity prices and the expected slump in demand globally. The consensus is that a relatively weak Australian exchange rate, especially against the US dollar, is expected to largely offset the adverse effects on earnings of lower commodity prices on world markets. The latest forecast is a slightly lower one than three months ago, when ABARE forecast 2001/02 commodity exports earning $91.48 million.

ABARE’s cut to its forecast of total commodities exports is backed up by a more optimistic view of farm exports than the past quarter, but a more pessimistic view of export performance by energy and minerals exports. ABARE forecasts that the value of Australian farm exports will rise by 5.2 per cent in 2001/02 to $30.93 billion. In contrast, ABARE is forecasting that the value of Australian energy exports will fall by 3.6 per cent to $24.76 billion in 2001/02.

Given the weaker world economic outlook, growth in demand for commodities is forecast to be more subdued in the short term. However, an assumed world economic recovery and higher growth in industrial production were likely to result in stronger demand for Australian commodities in major world markets towards the end of 2002.

The overall 0.7 per cent rise in total Australian commodity earnings in 2001/02, while impressive compared with global economic trends, still represents a severe decline from 24.5 per cent growth in 2000/01.

These figures re-confirm the lower Australian dollar as the saviour of the Australian economy in the past 12 months.

Iluka Resources

Iluka Resources is a company that should be included in any portfolio discussions, particularly now with the recent resignation of the long-standing managing firector Malcolm McPherson. Mr McPherson had been at the helm of the diversified mineral sands producer for 23 years, and his departure marks a watershed for Iluka Resources.

Iluka Ltd was formed in 1998 as a result of the merger of RGC Ltd and Westralian Sands. Iluka’s mineral sands operations have performed very well and the market has rewarded Mr McPherson’s operational management skills. However, Mr McPherson was not overly strong in corporate activities, with recent failed takeovers of BeMax Resources NL and Consolidated Rutile Ltd.

The sharemarket has taken the change well, with the share price firming from $3.90 on the morning of the announcement to a current level of $4.18, showing a return of 7 per cent since December 10. The market is expecting more corporate activity, with Iluka expected to be at the forefront of any industry rationalisation. Iluka has been mentioned as a possible merged target for Sons Of Gwalia. Other possible tie ups would include Iluka taking over other small players in the mineral sands business, with Basin Minerals often speculated.

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