Wednesday, 3 October 2012

A Bubble? How About Mega-Bubble

Moranbah, Queensland, where investors were onto a sure thing with an endless China boom demanding coal for their steel mills and workers were paid over $150K to drive a truck and a massive shortage of accommodation. The boom that would never end.

This blog has been calling a China hard landing and that country being in it's own bubble. What happens when you tie one bubble to another? Leverage. Leveraged gains (yay) and leveraged falls.

The Moranbah Bubble
According to this month’s API magazine, Moranbah had a 36 per cent increase in its median price over the past 12 months, climbing to $626,000.The median rent was $1500 per week (see this month’s May issue for more statistics).
Boom (or is that a POP?)!

House prices in Moranbah have fallen by as much as $100,000 in the past month and rents by as much as $800 per week, according to Real Wealth Australia’s Ed Kogtevs.
So severe is the bubble burst, that Real Wealth Australia is now warning investors not to buy there, after months of telling investors that Moranbah was one of the best ‘hotspots’ in the country.

“Don’t buy, it’s too uncertain at the moment,” warns Kogtevs.

“I had three places go up for rent in the last three weeks. I’m still getting $1800 a week but prior to Christmas I would have got about $2300 or $2400 per week.”

Kogtevs says the reason behind the sudden rental collapse is because BHP Billiton-Mitsubishi Alliance (BMA) is going hard on its enterprise agreement with the unions.
The Coal industry is deep trouble.

Queensland's coal mining future drowning as exports plunge and capital programs wind back

THE coal industry has hit a brick wall with another major miner reviewing all its expansions as exports plunge and BHP Billiton winds back its capital program.  
 "At current prices, most coal mines in this state are either running at a loss or struggling to stay in the black.

"It is not a position unique to thermal because the contagion is spreading quickly among our premium coking coal operations."

Yancoal, which owns seven coal mines in NSW and Queensland, told the ASX yesterday that although its volumes had been maintained it was reviewing its expansion plans and considering all options to rein in costs.

BHP Billiton has made similar comments about expansion.

Rio Tinto has announced the early closure of the Blair Athol mine and BHP's Norwich Park mine was closed this year.

Mr Roche said the increased costs felt by Australian producers were partly the industry's fault after the boom it experienced led to overbidding for labour and other costs.

"The reality is that most QRC coal members are well down the track of extensive cost reviews. Further losses are a certainty," Mr Roche said.
But, don't worry it will bounce back.

Kogtevs adds prices might even get down to around $650,000 for houses in a few months, so it’s probably best investors sit tight for now.

Thats a crash and the definition of 'deflation' - sitting on the sidelines awaiting a cheaper deal.

“Wait until the number of rentals drops to around 50. At the moment there are 138 rentals available. Then we say get back into the market. You should be buying in Moranbah, just not right now.”

Just hang in there investors, it will bounce back.

More QLD coal closures to come

However Neale said the "cumulative impact" of higher royalties and the mining tax would hurt the expansion plans of some miners.

"That burden is such that I would think in the current climate the majority of development projects in QLD are likely to be delayed to varying extents," he said.

In a speech yesterday Ferguson said weakening demand could bring forward more closures and delays in the industry.

"I do not rule out further mine closures on the east coast of Australia, especially in Queensland given these royalty increases," he said.
 More coalmine closures on cards 

The near-term pressure hitting the sector was evident this week, when BHP closed its second Bowen Basin coking coal mine in the past six months and flagged 300 job losses. At the same time, Xstrata flagged 600 jobs losses in Queensland and NSW and the closure of one of its two Brisbane offices.

The carbon tax and the increase in royalties on coking coal announced by Queensland Premier Campbell Newman last week do not help.

But they are far from the leading factors (and the minerals resource rent tax was designed, with BHP's involvement, to capture only big profits, so is even less a factor at current prices). The increased local headwinds come as Queensland's coking coal, which provided almost $30bn in revenue in 2011-12, faces growing international supply and demand pressures.

These were evident well before June 30, when coking coal began a 32 per cent slide to leave it at $US151 a tonne yesterday.
Job losses mount to 3500 as coal outlook dims

HIGH costs and sliding prices have caused more than 3500 mining job losses in the past six months, with a worsening outlook for coking coal threatening to bring more cuts to the reeling sector.
Analysts are predicting little respite for coking coalminers, with JPMorgan tipping the steelmaking ingredient, which is the nation's biggest export after iron ore, may stay around current price levels for the rest of the year.

Coal town real estate crashes as commodities plummet

STEPHEN LONG: Now no property at Moranbah would fetch anywhere near $1 million. Vendors are struggling to find buyers at any price

JOHN WOOD: The real estate market's taken a complete turn from where it was last year.

STEPHEN LONG: John Wood works with Bella Exposito at Moranbah Real Estate.

JOHN WOOD: We're currently very low in sales and very little interest.

STEPHEN LONG: So what's happened to prices? Just give me a ballpark figure.

JOHN WOOD: From the highs last year it would have probably dropped $200,000.

STEPHEN LONG: Per property on average?

JOHN WOOD: Per property yeah, on average.

STEPHEN LONG: When I was up there earlier this year, there were properties in the newer part of town that had sold for $1 million plus. And even three-bedroom fibros were going for very big prices, in the $600,000, $700,000, $800,000 range.

JOHN WOOD: Yeah, that's correct. Well we're not selling anything at the moment so it's pretty hard to give a comparison on what you would sell that property for today.

STEPHEN LONG: So you are literally not selling anything at the moment?

JOHN WOOD: Pretty much yep, that would be correct. Maybe one or two houses a month.

STEPHEN LONG: You said an average fall of about $200,000; in percentage terms what are we looking at?

JOHN WOOD: Approximately 25 per cent.

STEPHEN LONG: And in the worst-case scenario?

JOHN WOOD: Worst case, probably 35 per cent from the peaks last year.

STEPHEN LONG: The property price crash is running in tandem with a fall commodity prices, and a sharp decline in rental demand as the mining companies stop hiring workers. But don't try telling the local realtors it's over.
Here comes the spin. No mention of China's economic malaise bubble bursting, falling demand, nothing. It will go up with magic.
JOHN WOOD: We've had these cycles before and I'm sure that, you know, the industry's still going to be very strong for a lot of years. So it's just a glitch in the system I suppose.

STEPHEN LONG: Good time to buy as far as you're concerned?

JOHN WOOD: Yeah, that's correct, yes.

STEPHEN LONG: I'm surprised to hear a real estate agent say that.

JOHN WOOD: (laughs) It would be surprising wouldn't it.
Here is the 30 year price history for thermal coal John. Sure there were cycles and the humungous bubble. What did you do before you became a Real Estate peddlar? Were you good at it?

30 Year Thermal Coal

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