News Wrap

IN THIS morning’s News Wrap: Weak commodities hit budget; timing ‘bad’ for BHP demerger; and grim outlook for oil and gas capex.

Lou Caruana

Weak commodity prices to hit federal budget

The Treasury has signalled little optimism in a rebound in key commodity prices any time soon, which, along with its forecast of a continued slowing in China’s economy, will prolong the budget pain for the federal government, according to the Sydney Morning Herald.

In its Mid-Year Economic and Fiscal Outlook, the government slashed to 6.75% its forecast for China’s economic growth for 2015, falling below 7% for the first time in memory and well short of its earlier forecast of 7.25%.

And China’s economy will continue to slow, with growth dropping in 2016 to 6.5%, as India’s growth picks up to 6%.

Timing ‘bad’ For BHP demerger

BHP Billiton’s plan to conduct a demerger in 2015 is facing a new wave of scepticism, with some pundits believing the recent slump in commodity prices is undermining the rationale for the concept, according to the Sydney Morning Herald.

Prices for BHP’s two most important products, iron ore and oil, have fallen by 49% and 44% respectively in 2014, and RBC analyst Chris Drew said the company might struggle to meet its spending and dividend commitments if it also surrendered the revenue from the assets bound for the demerger.

Grim outlook for oil and gas capex

Capital expenditure by oil and gas companies will plunge by 20% around the globe if the oil price remains in the doldrums, according to the Australian Financial Review.

That’s the grim warning from AllianceBernstein analysts, who argue if Brent Crude prices average $US80 a barrel for 2014, capital expenditure by explorers and producers will sink by as much as 23% in North America and 18% in the rest of the world.

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