Dominant performance by big three

02/10/2007 - 22:00


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Western Australia has become unusually dependent on three giant resource sector producers, which account for more than half of the state’s entire exports.

Dominant performance by big three

Western Australia is enjoying an unprecedented export boom, but behind the rapid growth the state has a high reliance on a handful of companies and export commodities.

The world’s biggest mining company, BHP Billiton, contributed more than $13 billion of exports in the year to June 2007, or one-fifth of the state’s total merchandise exports, through its iron ore, nickel and alumina businesses, and its one-sixth interest in the North West Shelf venture.

Rio Tinto, through its iron ore and diamond businesses, also makes a huge contribution with $8 billion of exports.

The state’s single biggest export project is the Woodside Petroleum-operated North West Shelf venture, which generated estimated exports of $12.7 billion.

Collectively, BHP, Rio and the NWS venture account for more than half of WA’s merchandise exports, which totalled $60.5 billion in 2006-07.

The contribution of the state’s biggest exporters has been calculated by WA Business News using public data and company reports.

The NWS venture has six equal participants – Woodside Petroleum, BHP Billiton, BP, Chevron, Shell and Japan Australia LNG – and primarily exports liquefied natural gas (LNG), condensate and oil.

Its estimated exports are based on revenue data published by Woodside, and is adjusted for the venture’s estimated gas sales in the domestic market, which comprise a small portion of its total revenue.

The venture is set to become an even bigger exporter, once it completes the $2.6 billion construction of a fifth production train on the Burrup Peninsula.

Woodside is ranked as WA’s sixth largest exporter, with estimated export revenue of $3.38 billion last year.

Most of Woodside’s revenue is currently derived from its one-sixth stake in the NWS venture, but it will become a more significant exporter in its own right as it proceeds with new projects.

It recently commenced the $12 billion development of its wholly-owned Pluto gas project and is evaluating several other growth options, including the Browse and Neptune gas projects.

The significance of the Browse project was highlighted last month when Woodside, as the project operator, signed Australia’s largest ever export contract.

The agreement provides for PetroChina to buy two to three million tonnes of LNG per year for a period of 15 to 20 years. At current prices, the agreement is worth up to $45 billion.

The state’s second largest exporter is gold refiner AGR Matthey, which is owned by the WA Mint (40 per cent), US gold producer Newmont (40 per cent) and UK firm Johnson Matthey (20 per cent).

AGR Matthey told WA Business News that it generated export sales of $9.4 billion last financial year, up sharply from $5.1 billion in the previous year.

It attributed the big increase to an 18 per cent increase in gold produced and sold, and a 15 per cent rise in gold prices.

Sales in both years were much higher than the value of WA gold production, which was about $4.5 billion in 2006-07.

The big difference arose because, as well as buying gold from WA mining companies, AGR Matthey purchases gold from interstate miners and from overseas, which it brings into WA for refining and re-exporting.

Hence its net exports would be lower than the gross figure, though details are not available.

WA’s big iron ore miners, Rio Tinto and BHP Billiton, are the state’s third and fourth largest exporters respectively, and are on the way to becoming much larger.

Rio generated total iron ore sales of $7.79 billion in the year to June 2007, up more than 50 per cent on the previous year, according to data published in the group’s financial accounts.

This comprises total sales by its wholly owned Hamersley Iron business and its 53 per cent owned Robe River business.

BHP’s WA iron ore business lifted sales by about 20 per cent to $5.57 billion.

Both groups have benefited from sharp increases in iron ore prices over the past three years and, with analysts tipping further price increases in the current round of negotiations, the good news is set to continue.

They are also rapidly expanding their production capacity to exploit the strong demand for iron ore.

Rio’s expansion projects currently under way are set to lift its capacity to 220 million tonnes per year and it is planning further expansion projects to 320mt a year.

Similarly, BHP is in the process of lifting its production capacity in the Pilbara to 155mt and has a long-term goal of 300mt.

BHP Billiton’s Nickel West business is ranked as the state’s fifth largest exporter, with total sales of $4.36 billion in the year to June 2007.

Nickel West largely comprises the former WMC Resources business.

BHP is also building the Ravensthorpe nickel project, which will substantially expand the group’s WA nickel output after it commences production in 2008.

As well as selling its own production, BHP has off-take agreements with most of the other nickel producers in WA, including Jubilee Mines.

Russian company Norilsk Nickel and Minara Resources are the exceptions, since they are substantial exporters in their own right.

Alumina producers Alcoa of Australia and Worsley Alumina are Australia’s seventh and eighth largest exporters respectively, based on estimates by WA Business News.

The Bureau of Statistics does not disclose the value of WA’s alumina exports, nor do Alcoa or Worsley disclose their sales data.

The bureau lumps alumina, LNG and, strangely, lupins into a category called ‘confidential trade’, which was worth $10.5 billion last year.

The logic is that disclosing this data may reveal commercially sensitive information, since there is only one LNG producer and just two alumina producers.

However, DoIR has disclosed that WA’s alumina production last year was worth $4.8 billion.

Worsley Alumina accounted for $1.5 billion, based on estimates by WA Business News using financial and production data published by BHP Billiton, which is an 86 per cent shareholder in Worsley.

By default, that means Alcoa’s WA exports were worth about $3.3 billion.

Those figures roughly correspond with production data for the two groups.

An Alcoa spokesman said the company produced 8.49mt of alumina at its Pinjarra, Wagerup and Kwinana refineries last year, while Worsley produced about 3.4mt at its refinery near Collie.

Monopoly wheat exporter AWB Ltd also makes the top 10, with total exports last year of $1 billion, according to state manager Paul Ryan.


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