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A savage reversal in mining shares on the last day of the month couldn't prevent the ASX from enjoying its best November in 11 years, thanks to strong gains following the surprise US election result.
Weakness in commodity prices dragged on mining and energy stocks on Wednesday, offsetting gains in the banks, as investors geared up for the results of OPEC's official production meeting in Vienna.
Trade volume was subdued as investors contemplated the wide ranging speculation that the oil-producing cartel might fail to agree on a production cap which would send oil prices tumbling.
The benchmark S&P/ASX 200 Index and the broader All Ordinaries each fell 0.3 per cent to 5440.5 points and 5502.4 points respectively.
The Aussie dollar is proving remarkably resilient in the face of the commodities sell-off, last fetching 74.8 US cents, largely unchanged for the day.
"It looks like the market is anticipating a material cut from OPEC, therefore we feel the potential oil price and oil related stock reaction is skewed to the downside," said Ben Wilson, analyst at Royal Bank of Canada. After a steep drop overnight, Brent crude added 1 per cent to $US46.85.
Investors are awaiting signals that Iran and Iraq have agreed to the reduction of output by between 500,000 and 1 million barrels per day.
While energy stocks dropped 1.9 per cent, it was the materials sector that led the market's losses on Wednesday, sliding 2.8 per cent as Chinese iron ore and other metals futures plunged.
Investors sold off Rio Tinto shares, sending the price down 3.5 per cent, while BHP Billiton was off 3.4. Fortescue Metals, which is particularly sensitive to the iron ore price dropped a hefty 4.6 per cent.
But a rise in the big banks kept the market's losses in check, with ANZ Bank climbing the most on the day, up 1 per cent.
In other equities news, broadband provider Vocus Communications slumped another 4.1 per cent on Wednesday, after a 20 per cent punishment on Tuesday.
Investors are particularly concerned with the underperformance of recently acquired Nextgen. Around $1 billion worth of value has been wiped off the company's market capitalisation in just two sessions.
Medical cannabis company Zelda Therapeutics shares shot 34.8 per cent higher after the firm announced positive results from its study into the anti-cancer effects of its cannabis formulation.
Every year as investors turn their attention towards cricket, beer and strained familial relations, they also turn bullish on the prospect of a Santa Rally.
While there's no rational explanation why shares would take on a more joyous bent at this time of year, the question is whether shares can carry on the surprise rally that followed Donald Trump's election to the White House.
The Australian sharemarket still remains on track for its best November in 11 years (see chart below) while US stocks have been smashing through record highs.
To be sure, traders and analysts generally aren't too fazed by the absence of a firm statistical foundation, however they anticipate this year a small rotation back into yield plays, (largely shunned following Trump's election win) and an appetite for bank stocks.
"The mood coming out of the US is upbeat, there seems to be a lot more confidence in jobs growth and business confidence, that will definitely keep spilling over into our market," says Karen Jorritsma, director of equity sales at Citi. "You can expect offshore earners to do well and investors will be buying up the banks."
Investors are pouring back into financial stocks as the fear of increasing capital controls ebbs away slightly and investors sold off bonds following the US election. This spike in Australian bond yields bodes well for the banks, which like to borrow at the short end and lend at the long end, meaning a steeper yield curve is good for earnings.
Seasonally, the Santa rally doesn't usually start until a few weeks into December.
That said, the prospect of an interest rate hike in the United States will keep a lid on those yield plays, sensitive to the cost of debt. In fact, it was this time last year that the US Federal Reserve raised interest rates for the first time in nine years.
As OPEC members fly in to Vienna for negotiations on a deal to curtail oil production and prop up global prices, here's an overview of possible scenarios:
- Fudged deal: this would see curbs on output marred by exemptions for Iran and Iraq. There is also a risk that such an agreement could be opaque, without clear production targets for each OPEC nation. Such an accord may not be enough to mop up the projected glut in the first half of the year. That would leave the energy industry unsure about the prospects for a sustained market recovery and any loss of momentum would prompt investors to sell down oil-linked assets.
- Full agreement: OPEC clinches a deal with clear quotas and no exemptions beyond those granted in Algiers to Nigeria and Libya. Such an accord would probably boost prices to more than $US50 a barrel with investors switching their focus to whether group members comply with individual targets.
- Full failure: No deal of any kind. That would probably trigger a crash in oil prices to below $US40 a barrel, according to analysts such as Thomas Pugh of Capital Economics. It would also undermine the credibility of the exporting group to manage the market in the future. That outcome came a step nearer yesterday as Iranian Oil Minister Bijan Namdar Zanganeh said upon his arrival in Vienna that his country isn't prepared to reduce supply as it ramps up output following years of sanctions. Arch-rival Saudi Arabia is said to be ready to reject a deal unless all OPEC members, excluding Libya and Nigeria, participate in an oil-output agreement.
Most analysts expect OPEC to sign an accord to reduce output, but only seven out of 20 surveyed by Bloomberg expect it to specify how much each member should cut, complicating the task of investors assessing the impact on markets.
Here are economists on today's credit data from the RBA:
Total private credit posted another solid result in October, led by an expansion in the housing sector. Investor credit is accelerating again, with the annual rate at the highest level since August 2015. Meanwhile, growth in business credit has picked up over recent months.
Housing credit continues to expand at a solid rate, up 0.6% m/m in October. Notably, after slowing in response to regulators' intervention in 2015 aimed at cooling investor borrowing, investor finance is accelerating again (+0.7% m/m in October). Along with ongoing strength in auction clearance rates, the rise in investor credit provides further evidence that sentiment in the housing market remains positive. In contrast, growth in credit to owner-occupiers has been stable at 0.5% m/m for the last few months.
Business credit rose modestly in October (+0.5% m/m), although on an annual basis growth continues to slow. New finance approvals have also picked up recently after earlier weakness, providing tentative evidence of some improvement in the outlook.
Meanwhile, personal credit was flat in the month with the annual rate slowing further to -1.1%.
Here are CBA economists adding a little more detail on the annual change:
Credit growth for investor housing has accelerated since mid year, which is likely a response to the cash rate cuts in May and August. The annual rate of credit growth for investors is now 5.3%, up from the low of 4.6% a few months ago. The annual rate of credit growth for owner‑occupiers is slowing, down 0.2% points to 7.1%.
Japan's industrial production rose for a third consecutive month in October, with a slight gain just beating the median forecast of economists, as the nation's exports compensate for weak domestic spending.
Key points
- Industrial output rose 0.1 per cent in October from a month earlier (forecast 0 per cent).
- Output is forecast to rise 4.5 per cent in November, then fall 0.6 per cent in December.
Big Picture
Today's data reflect solid trade. Exports, measured month on month, gained for a third month in October, while household spending and retail sales both declined when compared to the previous year. The yen has weakened since President-elect Donald Trump's surprise win earlier this month, supporting the outlook for shipments.
Economist takeaways
- "The results weren't bad as shipments had a good gain and inventories fell, with a slight gain in production," said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute in Tokyo.
- A pick-up in global demand for IT items such as smartphones, and recoveries in economies in the US and Asia, are helping Japanese exports and production, Shinke said.
- "Japan's economy will likely head for a recovery in 2017, helped by a pick-up in exports and the effects of the economic stimulus measures," he said.
- "Activity is now well above the lows reached earlier this year, but there is still a long way to go to reach the peak ahead of 2014's sales tax hike," Capital Economics economist Marcel Thieliant said.
The details
- Industrial output fell 1.3 per cent from a year earlier (forecast -1.3 per cent)
- Measured month-on-month, shipments rose 2.2 per cent in October, the most in a year, while inventories fell 2.1 per cent.
ANZ has axed its traditional $1000 share bonus for staff this year, citing the need to cut expenses.
In an intranet post, management told employees that 2016 had been a "challenging year" and that in an "environment of lower growth and lower returns, ANZ needs to reduce costs".
Higher funding costs, narrower margins and rising bad-debt charges are putting pressure on profit at Australia's largest lenders, with ANZ earlier this month reporting its lowest full-year earnings since 2011.
Since taking over in January, chief executive Shayne Elliott has been winding back the bank's lower-returning operations in Asia and focusing on the domestic market.
"It's been a difficult operating environment for ANZ and our shareholders have already felt the impact of this through a reduction in the dividend," said Stephen Ries, a spokesman for the Melbourne-based lender, in an email to Bloomberg confirming the decision.
He stressed that the share offers were never guaranteed and came on top of other annual bonuses and pay rises for most staff.
Bank of Queensland chairman Roger Davis has highlighted the risks from a looming surge in apartment settlements in Brisbane and Melbourne amid signs more buyers are facing difficulties completing off-the-plan purchases.
Mr Davis told shareholders at the bank's annual general meeting the lender was "naturally cautious" on residential property, pointing to settlement risk and high prices in east coast cities.
While arguing there was not an economy-wide housing bubble, he stressed that property prices in key areas were "high," and a coming risk was the high number of off-the-plan apartments due to be settled in Brisbane and Melbourne, especially.
These two cities have the largest number of units to be completed over the next years, according to estimates from the Reserve Bank.
However, banks are reporting a growing number of buyers are struggling to settle on time because they are unable to obtain finance from their bank. Some bank valuations of properties are also below what buyers have agreed to pay in their contracts, the RBA said last month.
"Arguably a looming 'settlement bulge' in Melbourne and closer to home, in Brisbane, is creating an identifiable stress point in the economy which needs to be closely monitored," Mr Davis told the meeting in Brisbane.
His comments came on the day that new ABS figures suggested the boom in high-rise construction was slowing down, with the number of approvals for high-rise units falling about 40 per cent last month to a two-year low.
Markets are underestimating the full force of earnings upgrades in the resources sector as the commodities mini-boom rolls on, delivering an earnings windfall of up to $20 billion in 2018, Macquarie says.
The prices of Australia's biggest commodity exports, iron ore and coal, have jumped close to 80 per cent and 300 per cent respectively this year, but while analysts have factored in some of the price rises into their earnings forecast for miners in the current financial year, they have been reluctant to upgrade further ahead.
"Analysts are still too pessimistic in terms of incorporating where prices are into forecasts beyond 2017," Macquarie head of Australian macro research Jason Todd said in a briefing on Wednesday.
Should spot prices remain around today's levels, it would mean current profit forecasts for 2018 would need to be upgraded by about 200 per cent, Macquarie has calculated.
"This amounts to more than $20 billion of additional profits for corporate Australia," Todd said - a "significant jump" which should benefit investors in form of rising dividends as well as the economy as miners use some of the additional cash to invest in new projects.
Todd conceded that some mining stocks looked stretched after a ferocious run over the past months that has driven the likes of Fortescue's shares up by more than 200 per cent this year, but he said that valuations both for the overall market as well as for miners were still reasonable.
"I pay less now for the materials sector than I did at the beginning of the year as earnings have gone up faster than prices," he noted.
China's economic growth would continue to support the local mining sector, he predicted, noting that while curbs in the property sector would lead to some drag in the first half of next year, industrial activity indicators such as railway freight, power output or excavator sales were all at two-year highs.
Resources stocks are one of the drivers behind Macquarie's prediction for the S&P/ASX 200 index to hit 5875 points next year, or nearly 8 per cent higher than current levels. The other sector the analysts are bullish about is banks, due to a combination of attractive valuations and improving outlook.
Here's what's weighing on miners today: Chinese iron ore and other commodity futures have plunged as speculators rushed to liquidate bullish bets as soaring bond yields renewed concerns about liquidity in the world's second-largest economy.
May iron ore in Dalian is down 8 per cent to 556.0 yuan ($US81) a tonne, one of its largest percentage falls since futures launched three years ago.
Coking coal and steel rebar are on track for their biggest one-day drop on record while investors also sold base metals to shore up cash, with Shanghai zinc and copper futures also down sharply in early trade.
Technical and computer-driven selling added further pressure for a second straight day of heavy selling after China's major commodity exchanges introduced further measures aimed at taming a spectacular months-long rally.
The most-traded May coking coal futures on the Dalian Commodity Exchange were on track for their biggest one day loss on record, falling 9 per cent to 1282 yuan ($US186) a tonne.
Steel rebar for May delivery on the Shanghai Futures Exchange was down 7 per cent at 3000 yuan ($US436) a tonne, facing its largest ever one-day drop.
The liquidation threatens a months-long rally that had pushed prices to their highest since April 2014 on Tuesday.
Overnight yuan borrowing costs in Shanghai surged to a two-month high on tight liquidity in the market after the central bank pulled funds from the financial system, traders said.
"There's a liquidity crunch in China so that's not good for commodities in China," Helen Lau, analyst at Argonaut Securities said. "The speculators and retail investors have big (long commodity) positions, so the swings in prices are amplified."
Long- and short-term bond treasury bond yields in China jumped for a second day, with the 14-day bond yields hitting their highest since end-March as concerns rose about liquidity in the banking system.
A reduction in China's steel capacity along with a push to spend more on infrastructure has fuelled a 90 per cent spike this year in prices of construction steel product rebar.
The WA government will sell 51 per cent of the state's electricity poles and wires, via a public float, that it estimates could raise more than $11 billion.
The government will use $8 billion to reduce debt and spend $3 billion on infrastructure investments including $1 billon for schools and $1 billion for transport.
WA premier Colin Barnett said Australian superannuation funds and mum and dad investors would own shares.
"Western Power will not go in to foreign ownership or control," he said.
The government has been assessing potential structures for a sale since May, when treasurer Mike Nahan flagged the utility would be put on the chopping block as part of a $16 billion assets sale bonanza to repair the state's tattered finances and provide funding for infrastructure.
The government more recently has been considering a partial sale via a listing of the assets, that would allow mum and dad investors to participate in a public float. Almost half of Western Power would remain in government hands. It would make it the nation's second biggest float behind Telstra.
Lacklustre economic growth and stubbornly low inflation mean any talk of the RBA lifting rates next year is premature, economists say.
Earlier this week, the OECD predicted the Reserve Bank will start to tighten late next year as the economic recovery strengthens and housing prices blow out, while last week Goldman Sachs said a 2017 rate hike was possible thanks to stronger than expected GDP growth.
Meanwhile, financial markets have for the first time in two years started to price in the possibility the RBA might lift interest rates over the next 12 months.
"This is not completely crazy," says Paul Dales from Capital Economics, pointing to a stronger-than-expected housing market, a weaker Aussie dollar, and Trump's surprise victory contributing to a spike in Australia's key commodity prices as well as a 6 per cent rise in equity prices.
But he said the RBA was "almost guaranteed to leave interest rates on hold", citing the surprisingly big fall in construction work in the third quarter, a concern over deterioration in the labour market and still soft wages growth.
"In fact, we still believe there is a reasonable chance that interest rates will fall to 1.0 per cent next year" should the housing market also cool, he says.
"The bottom line is that, even in light of the leap in commodity prices, it is far too early to conclude that the RBA's low underlying inflation problem has been solved."
This comes as Macquarie economist James McIntyre predicted a base case of two RBA cuts in the first half of 2017, taking the cash rate to 1 per cent.
"The recent data flow suggests that the RBA will be presented with weaker-than-expected economic growth, and potentially lower inflation, when it meets in February," he said at a briefing.
The RBA will also have to deal with an Aussie dollar higher than previously predicted, despite its most recent depreciation against the greenback.
While the recent surge in commodity prices will prop up Australia's terms of trade, delivering a boost to nominal GDP, McIntyre says the broader economy won't profit as much as in previous resource booms, at least not in the short term as companies hold back with new investments.
"We expect a lift in mining capex, but not in time to deliver enough near-term demand support," he says, adding that a stronger Australian dollar due to the surge in commodity prices could also hamper the economic rebalancement.
The bank's risk case sees further cuts, with rates falling as low as 0.5 per cent. But McIntyre concedes: "A lot would need to go wrong, and a lot would need to be done domestically for the RBA to cut below 1 per cent."
The past year has been a lean one for anybody hoping to earn an income from mining shares.
Dividend yields on the Bloomberg World Mining Index fell to 1.4 per cent on Monday, the lowest level in five years and well below the 1.79 per cent that five-year US Treasuries are offering.
Things are looking up, however. Vale, the world's biggest iron ore miner, said it will resume dividends, just 10 months after management sought to suspend them. Glencore may also restart payments after skipping two instalments, according to Credit Suisse, UBS and Macquarie Group .
Analyst forecasts for dividend yields have been ticking up for four months. The last time they ran so far ahead of historical payouts was in late 2014, shortly before a run-up in yields (largely as a result of slumping stock prices) through 2015.
A return to payouts would prove to be a welcome shift in the capital cycle for mining investors.
Faced with a grim overhang of debt and vanishing earnings as the past decade's commodity boom gave way to bust last year, big mining companies raided their shareholders to buy their way out of trouble.
Capital spending was reined in, but so were dividends from the mining giants. Investors who wanted to see their companies survive had to grit their teeth.
Belt-tightening is all very well, but it's starting to feel so last year after iron ore and thermal coal, which make up a major slice of revenue for mining heavyweights BHP Billiton and Rio Tinto, have risen more than 80 per cent. Glencore has benefited from the coal surge. And coking coal, of which BHP is the dominant producer, has jumped almost 300 per cent.
There's good news and bad news there for mining investors. With the recovery in commodity prices, miners' share prices have rebounded too.
The bad news for those seeking dividend income is almost the same. Shareholders have been handsomely rewarded by capital gains, so they aren't in desperate need of relief from dividends.
New housing approvals figures are "the clearest sign to date that Australia's high-rise driven dwelling construction boom is starting to turn down," Westpac economist Matthew Hassan says.
The ABS data released this morning showed total approvals fell 13 per cent in October, on a seasonally adjusted basis, with September's 8.7 per cent decline revised to a 9.6 per cent drop. The consensus forecast among economists was for a 1.5 per cent rebound. Building approvals have now dropped in each of the past four months.
But the very volatile high-rise approvals figure showed a monthly decline in October of about 40 per cent, to hit a two-year low.
And it wasn't just apartment towers. Detached house approvals dropped 3.4 per cent, what Hassan called "a sizeable fall for what is usually a much more stable component and one that should have seen more support from recent rate cuts".
"Overall the update is unambiguously weak and puts a clear marker in the ground showing the construction cycle is now turning down," the Westpac economist says.
A drop in approvals will take some time to translate into lower construction activity. High rise apartments, for example, can take two to two-and-a-half years to complete. So the downturn on this segment won't hit activity until "well into 2018", Hassan reckons.
"Although very early days, the magnitude of today's weakness means approval volumes are on track to decline sharply" in the final three months of the year, JP Morgan economist Tom Kennedy says. He adds that this is consistent with their view that "the impulse from residential investment to real GDP should fade in 2017".
The building approvals numbers are broadly negative for ASX-listed companies exposed to the housing construction boom, RBC Capital analyst Andrew Scott says.
"The last two months' of building approvals data seems to reaffirm our view of a peak in Australian housing starts in calendar 2016," Scott says.
"While we believe that demand may be supported for some time beyond this, a slowing detached housing starts profile will likely provide negative sentiment for the building materials stocks."
While Scott remains cautious on the sector, he nonetheless maintains "outperform" ratings on CSR and Boral, and has a "sector neutral" stance on Fletcher Building, James Hardie, and Adelaide Brighton.
In case you were wondering how much holders of long-term Aussie bonds have been hit in recent times, the answer is: very hard.
The below chart shows that since bond prices peaked on August 2 (the last time the RBA cut), hypothetical holders of longer term government notes have lost more than 8 per cent. Since the November 8 US election, they've lost 4 per cent.
As nasty as that is, over the year Aussie long bond investors are still ahead approaching 5 per cent, so it's certainly no disaster. At least not yet. It's also worth noting that shorter-dated bonds would have not copped it as bad.
10-year Aussie bond yields (which move in the opposite direction to prices) troughed at 1.8 per cent in early August and have since climbed by close to 1 percentage point - a massive move for the usually slow-moving bond market.
Medibank Private chief executive Craig Drummond has warned revenue in the first four months of the financial year is below expectations.
He promised to cut waiting times and customer complaints and offer new products and services to turn around a collapse in the private health insurer's market share.
Mr Drummond admitted to analysts at a briefing in Melbourne that the "Medibank brand has been in decline for about eight years" and his key objective was to "put the customer first" to stabilise the business within the next two to three years.
The company said revenue in the four months to October 31 was "slightly below company expectations" and said the company's health insurance operating profit for the 2017 financial year would be "broadly" in line with 2016 result at around $490 million.
Mr Drummond said he plans to measure executive performance using net promoter score - which is driven by customer satisfaction - bring customer waiting times from more than seven minutes to under one minute, cut costs through things like automating procurement and new hospital agreements as well as offering customers new products like $40 million in dental check-ups and better digital channels.
"Our members have declined by 2.5 per cent and our market share has continued to decline at a similar rate ... this is not sustainable", Mr Drummond told the briefing.
"The fix is not buying other businesses to grow Medibank. What is right is to focus on the core, strengthen it, fix our customer pain points, get the basics right. We now have the right team in place, we are building the culture of accountability."
"2017 is about re-orientating to our customer by investing in service, experience and product value and doing so through ongoing cost saves and necessary investment," he said.
"When you lose two and a half per cent of your customer base in one year, the first issue is to understand what the issues are ... we understand those issues now and are trying to fix them."
Mr Drummond admitted there is a lot of work to do with one analyst questioning the new executive team "why they are leaving us in droves".
Medibank shares are set to break a seven-day winning streak and are 1 per cent lower at $2.58.
For Asian markets, 2017 could be the year of the dollar crunch.
Foreign portfolio flows have taken a sharp downturn since Donald Trump's election victory, with $US15 billion fleeing Asian bonds and stocks this month alone — close to 30 per cent of year-to-date inflows to the region, according to Deutsche Bank — as a strengthening greenback and a bevy of protectionist policies from the president-elect darken the growth prospects for emerging markets.
Lending spreads, domestic demand and the resolve of domestic central banks to offset liquidity shortages will be tested next year, analysts warn, as key sources of dollar flows to the region — trade and portfolio inflows — may unravel if Trump makes good on his key campaign proposals.
A slew of investment banks this week, including Deutsche Bank, Citigroup, Morgan Stanley and Societe Generale, reckon the pain for emerging markets will intensify in 2017, citing, in part, the rising cost of servicing dollar debts amid a strengthening greenback relative to local currencies, and higher Fed policy rates.
"The [debt-servicing] challenge looks even fiercer for non-US borrowers who have borrowed in dollars — dollar strength will make it harder to repay the debt," SocGen analysts wrote.
"There are plenty of them, as the outstanding dollar-denominated credit to the rest of the world has more than doubled over the past 10 years to nearly $US10 trillion," analysts at the French bank conclude. "EM countries and corporations in particular have been keen on borrowing in dollars ([to the tune of] $US3.2 trillion."
But a recent rebound in emerging markets is expected to be "sustained" as a strengthening US economy under President-elect Donald Trump may help boost these economies, according to Mark Mobius, executive chairman at Templeton Emerging Markets Group and a veteran of EM investing.
The MSCI Emerging Markets Index has risen 2.6 per cent from its four-month low on Nov. 14, while some currencies in developing countries -- including the South African rand and South Korean won -- have rebounded in the past week. All 24 emerging-market currencies dropped against the greenback in the two weeks following the Nov. 8 S elections.
"He will probably be successful to resuscitate the American economy," Mobius said. "That's good for everybody including emerging markets. His program in my view would be heavy infrastructure spending. Spend like crazy, build up a huge deficit that would be concerning to the rating agencies, which will help push the dollar down."
And the Deutsche analysts are by no means painting a doomsday scenario for Asian markets next year — Asian central banks have a large war-chest of foreign-exchange reserves (which, including Japan stand at $US6.8 trillion), while, as with the rally post Brexit-vote, capital flows to Asia next year could remain strong.
But they warn the Trump regime is a game-changer for a region that, as a whole, has been largely lavished with dollar liquidity in recent years.
All three of Queensland's liquefied natural gas plants could end up running at less than full capacity as they struggle to remain in the black at current low LNG prices, according to respected consultancy Wood Mackenzie.
The firm is warning that as ventures extend their drilling to lower quality coal seam gas acreage, many wells wouldn't be economic unless LNG prices recover. Up to a quarter of the projects' total production risks becoming unprofitable, it said.
While Santos has already said it would not run its new $US18.5 billion GLNG venture at full production given the cost of sourcing additional gas, Origin Energy's Australia Pacific LNG venture and Shell's Queensland Curtis venture could find themselves in the same position should LNG prices remain depressed, said Wood Mackenzie analyst Saul Kavonic.
"We think that with time it's going to impact all three projects," Mr Kavonic said. "They're just not delivering the way they were expected when they took sanction."
The three Queensland projects differ from the conventional LNG projects on the north-west coast as they require ongoing drilling of coal seam gas wells to maintain production. But with Asian LNG spot prices in a slump that is expected to last several years, making that extra investment may not be worthwhile, especially as drilling extends beyond the "sweet spots" that hold the richest resources.
"What's new about this is, we've never had in Australia or really globally the case of an economic decision to run LNG projects below capacity: it's always been once they are up and built and most of the capex is sunk, you try and squeeze out every drop that you can," Mr Kavonic said.
"That is what will happen on the west coast with Gorgon, Wheatstone and Pluto and so on, but for these ones [in Queensland], because of the ongoing cost of drilling, it's a different story."
Gaming machine giant Aristocrat Leisure eclipsed analyst expectations by posting a 69 per cent surge in underlying net profit to $398.2 million.
The company said revenue rose 35 per cent for the year ending September 30 to $2.133 billion. Analysts had expected a profit of $383 million.
The 2016 financial year was the first with Aristocrat having full ownership of US group Video Gaming Technologies, which it acquired for $US1.3 billion in July 2014.
The company said it expects "continued growth" in the 2017 financial year but did not provide more specific numbers.
Its full-year profit from ordinary activities after tax rose 88 per cent to $350.5 million, the company said in a statement to the Australian stock exchange.
The company declared a final dividend of 15 cents a share, unfranked - up six cents - from nine cents a year earlier.
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