Manufacturing activity drops in March, Takeovers activity continues: Economy Roundup

Australian manufacturing activity declined in March as companies continued to suffer under low demand, higher interest rates and a continued rise in the value of the Australian dollar, according to the latest results from a private index.

The Australian Industry Group-PriceWaterhouseCoopers performance of manufacturing index fell by 3.6 points to 50.2 in March – but still remained above the 50-point level separating expansion from contraction.

AIG chief executive Heather Ridout said in a statement that declines in production, employment and inventories along with slower orders growth and selling prices kept overall growth down.

“We don’t want to call the manufacturing recovery a glass half empty, but we’d also be hesitant to call it half full,” Ridout said. “The lacklustre reading suggests the recovery in manufacturing is battling strong headwinds in the form of weak demand, a strong dollar and rising interest rates.”

“The Australian PMI result underlines the importance of the upcoming federal budget for manufacturing, which faces particular challenges from the emerging two-speed economy.”

The data revealed a drop of 5.1 points in the index of new orders to 50.09, while the survey’s index of employment fell by 2.6 points to 47.1.

Meanwhile, the seasonally adjusted estimate of the balance on goods and services resulted in a deficit of $1.9 billion during February, an increase of $804 million on the revised deficit of January 2010.

Seasonally adjusted goods and services credits fell by 1% to $19 billion, with non-monetary gold dropping 28% and non-rural goods falling by $25 million. Rural goods rose by 2%, with services credits rising by 1% to $42 million.

Seasonally adjusted goods and services debits rose by 2% to $21 million, with consumption goods rising 5%, with the non-industrial transport equipment component up 16% to $210 million.

Non-monetary gold rose 33% to $116 million, with capital goods rising 2% to $65 million. Intermediate and other merchandise goods fell by 1% to $57 million, with services debits rising 3% to $129 million.

Lihir Gold has rejected a $9.2 billion takeover offer from Newcrest Mining, saying it undervalues the company.

The offer, which was received on March 29, comprised of one Newcrest share for every nine Lahir shares, along with 22.5c, less an interim dividend for the half year to June 2010.

“Directors and management made certain that Newcrest was given the opportunity to make an offer that would deliver full value for our shareholders, but the board’s assessment was that the offer received was inadequate. We felt we had an obligation to shareholders to reject the offer,” Lihir chairman Ross Garnaut said in a statement.

“The board is strongly of the view that LGL is undervalued in the marketplace, and that view has been expressed to us on a number of occasions by shareholders.”

Shares higher despite losses on Wall Street

The Australian sharemarket has opened higher today due to good results in commodities and metals markets overnight, despite Wall Street closing lower.

The benchmark S&P/ASX200 index was up 21 points or 0.45% to 4897.5 at 12.15 AEST, while the Australian dollar opened slightly higher to US91c.

Shares in National Australia Bank grew by 0.1% to $27.56, as Commonwealth Bank shares gained 0.4% to $56.52. ANZ lost 0.4% to $25.27, as Westpac lost 0.4% to $27.72.

Mining giant Rio Tinto has finalised an agreement with the Mongolian Government for the development of a $4.37 billion copper and gold project.

The agreement will see Mongolia own 34% of OT LLC, the licence holder, with production expected to begin in 2013. Output will be ramped up to a full rate of 450,000 tonnes of copper per year.

“The investment agreement has now taken full and binding effect,” Rio Tinto said in a statement yesterday.

Goodman Fielder has announced that it will restructure its fats and oils business if it cannot reach an agreement with the Australian Competition and Consumer Commission.

“Failing a resolution of the issues, the company will retain ownership and proceed to develop and substantially restructure the operations to improve profitability,” a Goodman Fielder spokesman told Reuters.

The ACCC has said it will oppose the $240 million sale of the business, saying it would likely result in a significant concentration of fats and oils assets in Australia.

“Inquiries by the ACCC indicated that for a number of fats and oils products, Goodman Fielder and Cargill have been each other’s closest competitor, and that both companies vigorously compete to supply bulk fats and oils products to a number of large customers,” ACCC chairman Graeme Samuel said in a statement.

“The findings led the ACCC to conclude that the proposed acquisition would likely result in a substantial lessening of competition in markets for the supply of certain refined oil products, in particular those products used by industrial food manufacturers to make a range of food products.”

Former Victorian chief police commissioner Christine Nixon is expected to join the board of Foster’s Group as a non-executive director in April. Chairman David Crawford said in a statement the company will benefit from her experience.

“On behalf of shareholders I am very pleased to welcome Christine to the Foster’s board,” Crawford said. “Christine’s leadership, management experience and her strong community focus will be an asset at the Foster’s board table.”

Virgin Blue signs new aircraft deal with Boeing

Virgin Blue has signed an agreement with aircraft manufacturer Boeing to add 105 new 737-model aircraft to its fleet. The deal comes after nine months of negotiations, and is the biggest order in the company’s history.

“This consummates the in-principle agreement, which was signalled at the recent half year financial results briefing,” Virgin Blue said in a statement. “The agreement includes 50 firm B737-800NG aircraft (with flexibility to convert to either, 25 additional firm delivery positions secured as options and 30 future purchase rights.”

“It will also ensure a turnover of aircraft to maintain the youngest fleet of modern aircraft which is crucial for maintaining our commitment to on-time performance and the lowest cost base possible,” chief executive Brett Godfrey said in a statement.

“The new aircraft order will deliver a further reduction in operating costs to manage the airline’s future cost base, maximise reliability and continue to bring to market modern airline products and services.”

Overseas, US stocks have fallen despite new economic data showing recovery in some sectors. The Commerce Department announced orders for manufactured goods increased 0.6% after an upwardly revised 2.5% in January.

But stocks took a dive after a new ADP Employer Services report showed private-sector employment dropped during March. A separate report also showed that US Midwest business activity expanded by a less-than-expected amount during February.

The Dow Jones Industrial Average gained 50.79 points, or 0.47%, to 10,856.63. The Standard & Poor’s 500 Index dropped 3.84 points, or 0.33%, to 1,169.43.