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WA-Japan Relationship and Opportunities Craig Peacock Commissioner North Asia Agency – Tokyo Office 19 September 2013

WA-Japan Relationship and Opportunities Craig Peacock Commissioner North Asia Agency – Tokyo Office 19 September 2013. Topics for today. A quick look at Japan Functions of the Japan offices and our role The iron ore market The LNG market Agribusiness opportunities

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WA-Japan Relationship and Opportunities Craig Peacock Commissioner North Asia Agency – Tokyo Office 19 September 2013

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  1. WA-Japan Relationship and Opportunities Craig Peacock Commissioner North AsiaAgency – Tokyo Office 19 September 2013

  2. Topics for today • A quick look at Japan • Functions of the Japan offices and our role • The iron ore market • The LNG market • Agribusiness opportunities • The Kansai Region and special opportunities • How to contact us

  3. Japan is back!!! Abenomics is working!

  4. What is this “Abenomics”? • Abenomicsincludes a “mix of reflation, government spending and a growth strategy designed to jolt the economy out of suspended animation that has gripped it for more than two decades.” • The stock market has subsequently risen by 55 percent, consumer spending has pushed economic growth up 3.5 percent annually, and Shinzo Abe’s approval rating has ticked up to 70 percent. • Abe’s economic policy can be interpreted as having as much to do with reinvigorating the economic situation as does with the rise of China. • The Economist: “Economic decline took on a new reality in Japan when China elbowed Japan aside in 2010 to become the world’s second largest economy... Mr. Abe believes that meeting China’s challenge means shaking off the apathy and passivity that have held Japan for so long.” • Recent spats with China over the disputed Senkaku islands have led to a call to action. • Abenomics is an economic doctrine inextricably linked to Japanese national security policy.

  5. Abenomics – The Three Arrows • Quantitative Easing : the BOJ (Bank of Japan) leaves the interest rates near 0% with the objective of promoting lending. The objective over the next years is to double the amount of money in circulation and as a consequence reach a 2% inflation target. As a consequence itheyen has been depreciating fast against other currencies since the Abenomics measures were implemented. • Fiscal policies to stimulate demand: investment in public works and renovation of infrastructure which is older than 50 years (built shortly after the Second World War), tax breaks to companies that invest in R&D and hire more employees, pay higher salaries, buy new equipment, etc. These measures aim to achieve an increase in investments, create new jobs and increase salaries. • Deregulations and creation of sustainable growth: This arrow includes the Trans-Pacific Partnership (TPP), a new free-trade agreement between countries in the Asia-Pacific region that would help Japanese companies export more. It could also mean positive things for an FTA with Australia, which has been 6 years in negotiation!

  6. Is Abenomics really working? Well, yes, for now it is… • 15 years of debilitating deflation is over, prices are up 1%, half of the 2% target • The job market is stronger, incomes are up, spending up • Unemployment down to 3.8 • Manufacturing is up 3.2% • The economy grew 2.6% in Q2

  7. Is Abenomics really working? • Data released 9 Sept 13 shows the rebound is strong • Q3 growth set to exceed 3.8% • Private investment up 1.3% • A real chance to move forward, most Japan believe Abe is the man to do it

  8. Is Abenomics good for WA? • You bet! Cashed up companies are rewarded for investing abroad • Despite high costs, WA is still one of the most attractive investment destinations • Change in federal government seen as positive – carbon tax, mining tax disliked in Japan • Premier’s visit in June cemented a good relationship with the Abe government

  9. A Quick Look - Japan & WA • Japan is Western Australia’s second largest trading partner. Total bilateral trade was worth over $25 billion in 2012. • Western Australia’s merchandise trade with Japan has grown from $9.4 billion in 2000-01 to $19.9 billion in 2008-09. In 2009-10 it declined to $16.6 billion in response to the GFC but has now grown to the figure above. • Exports account for over 85% of Western Australia’s merchandise trade with Japan ($23bn). • Western Australia’s exports to Japan have grown at an average annual rate of 10%, the GFC providing the only hiccup in that trend.

  10. A Quick Look - Japan & WA • Japan is the State’s largest market for petroleum exports with a 44% ($9.4 billion) share in 2012. • Other major commodities Japan imported from WA in 2012 included LNG ($7.5 billion or 40%), crude oil ($919 million or 6%), LPG ($730 million or 5%) and wood chips ($281 million or 2%). • Japan is also WA’s top export market for agriculture, amounting to over $900 million in 2012.

  11. A Quick Look - Japan & WA • Japan rates third after the US and UK as Australia’s largest source of foreign investment. • Last year a large proportion of Japan's new $120 billion in investments in Australia came to WA, primarily for resource development. • Western Australia’s trade with Japan in iron ore in the 1960s and LNG in the 1980s created WA's first modern resources boom. • Iron ore was Japan’s largest import commodity from Western Australia in 2012, valued at $11.5 billion or 42% of total imports from Western Australia.

  12. A Quick Look - Japan & WA • Iron ore exports to Japan have grown at an average annual rate of 12% over nine years, from $2.1 billion in 2000-01 to $11.5 billion in 2012. • It was Japanese foundation investment that provided the core infrastructure that enables WA today to service the broader global market for petroleum and mineral resources. • Japanese investors - including some here today – continue investing into the expanding WA minerals sector, and most recently into boosting production of rare earths.

  13. Functions of the Agency“Opening the door to Japan” • WA Tokyo Office established in 1968, first Australian state office in Japan • In keeping with our broad role to support, help coordinate and expand WA-Japan trade, the WA government Japan offices work to facilitate and support the flow of trade and investment in both directions. • Our key function in Japan is to provide local on-the-ground knowledge and expertise to support WA companies looking to grow and expand by entering the Japanese market. • Our other primary functions include: • Assisting new and existing Western Australian businesses to grow through diversified exporting • Attracting new Japanese business and investment into Western Australia • Provision of information on approvals processes, royalties and taxation • Helping to establish business bases in Japan for Western Australian companies • Offering advice on political, economic and cultural conditions in Japan • Assisting with missions, exhibitions and company visits to and from WA • Promoting goodwill via cultural and education exchanges • Assisting any Japan-based activity that benefits Western Australians

  14. Japan – Iron Ore Market • In 2011 the Japanese steel industry recovered steel production levels to pre-Global Financial Crisis (GFC) levels. A production of 120.6Mt of steel output was achieved in the 2012 calendar year, a 15% increase over 2011. This production retains Japan’s standing as the second largest world steel producing country, with 7.8% of world supply. • The Japanese steel industry is reliant for a significant part of its output on the export market (about 40%), particularly to neighbouring countries of South Korea, China, Thailand and Taiwan. • A portion of “Chinese” demand is actually indirect Japanese demand as Japan is the largest foreign investor in China.

  15. Japan – Iron Ore Market • Japanese steel company growth is seen via participation in joint venture steel developments or alliances in a wide range of locations, especially developing regions such as Brazil, India, China, and Vietnam. • Overall Australia supplied 60.2% or 83Mt of Japan’s total iron ore intake of 134Mt in 2011. This is double the supply sourced from Brazil.

  16. Japan – Iron Ore Market • The question of continuing competitiveness of Western Australia is important in maintaining our 60% penetration of the Japanese market. Additionally, to Japan the availability of quality ore supply is important, in what it sees as a market more focussed on China, lower quality ores and the increasing lock up of supplies by Chinese “companies”.

  17. Japanese Steel Mills Crude Steel Production 2012 • Arcelor Mittal 93,600,000t (down from 2011) • Nippon Steel/Sumitomo Metal Corp.(from 1/10/12) 47,900,000t (up from 2011) • Heibei Steel (China) 42,800,000t (down) • Baosteel (China) 42,700,000t (down) • Posco (Korea) 39,100,000t (flat) • JFE Steel30,400,000t (up) 48.Kobe Steel 6,800,000t (up)

  18. Japan – Iron Ore Opportunities • Expansion in steel production linked to exportsin autos • Demand stagnant in recent years but will increase due to rebuilding needs (March 2011 earthquake) and greater export potential. • Investment in WA projects has stepped up in 2012 and this trend will continue. • Recent investment activity includes: • Roy Hill (Marubeni 12.5%) • Southdown (Sojitz/Kobe Steel 30%) • Oakajee(Jack Hills/OPR) (Mitsubishi Corporation 100%)

  19. Japan – Iron Ore Opportunities • Potential steel mill investors include Nippon Steel/Sumitomo Metals, JFE Steel and Kobe Steel. • Potential trading firm investors include Mitsui & Co, Mitsubishi Corporation, Sumitomo Corporation, Itochu Corporation, Sojitz • Consortiums of the above are also possible investor entities • Our Agency can coordinate meetings with these companies in Tokyo, introduce key decision makers and follow up on meetings. • The key is to visit Japan with a carefully prepared presentation. We can work with you to make sure your presentation materials are suitable. • Most decisions are long term, “Win- Win” is the goal. • Our Agency has assisted in every Japanese iron ore investment in WA in the last 10 years.

  20. Japan - LNG Market • Japan is still WA's number one buyer for LNG - and that is currently where much Japanese investment is heading • The March 11 2011 earthquake and tsunami caused the gradual shutdown of Japan’s 43 nuclear power stations – to date only 2 have reopened but more possible under current government • The loss of nuclear has meant a scramble for LNG and spurred equity investment in projects to guarantee off-take

  21. Japan - LNG Market Key Facts • LNG: Tokyo Electric Power and Tokyo Gas were one of eight foundation customers for Western Australia’s North West Shelf LNG project. • In recent years, Tokyo Electric Power has become a foundation customer/investor in Chevron’s Wheatstone project. • Woodside’s Pluto Project is funded through a financial agreement with JBIC. Tokyo Gas and Kansai Electric Power Corporation acquired 5% equity each in the project. • Chevron’s Gorgon project has several Japanese partners including Tokyo Gas, Osaka Gas and Chubu Electric Power Corporation.

  22. Japan - LNG Market Key Facts Current major equity holdings by Japanese entities: North West Shelf: MiMi (Mitsui 8.33%, Mitsubishi 8.33%) Browse: MiMi (under negotiation) Wheatstone: PE Wheatstone (TEPCO, JOGMEC,MC, NYK – 10%), Kyushu Electric (1.83%) Pluto: Tokyo Gas (3.07%), TEPCO (6.13%) Gorgon: Osaka Gas (1.25%), Tokyo Gas (1%), Chubu Electric (0.417%) Ichthys: Tokyo Gas (1.575%), Osaka Gas (1.2%), Chubu Electric (0.735%), Toho Gas (0.42%)

  23. Japan - LNG Opportunities • Onshore opportunities, increasing interest in shale gas, Canning Basin exploration by Buru Energy and Mitsubishi Corporation is positive an exciting development • Japan’s LNG demand dependent on the energy mix but will increase for the time being • An important key is providing timely exploration releases to Japanese companies – state government works in conjunction with the federal government to provide detailed information via seminars and meetings • Our Agency is always willing to introduce potential equity and off-take partners

  24. Japan – Agribusiness Opportunities Currently very strong opportunities exist for wheat and oranges • WHEAT: Potential deregulation on wheat imports to Japan. There is a possibility that MAFF might allow to import noodle wheat under SBS (Simultaneous Buy and Sell) system. Though there is no official announcement from MAFF, major flour millers have started preparing for this possible deregulation on wheat import.) • Though the demand for WA noodle wheat from Japan is stable, the majority of WA farmers have been reluctant to grow noodle wheat because of the current Japanese tender system (current tender system emphasises price not quality, reducing the value of the noodle wheat crops. • DAFWA in cooperation with the WA government has been discussing a potential solution with MAFF.  • Successful exporters include CBH Grain, Cargilll, Emerald, etc

  25. Japan – Agribusiness Opportunities • ORANGES: WA now able to export fresh oranges (mainly navel) and mandarins • AEGICand the Tokyo Office have started looking into orange market opportunities in Japan. Though the production of oranges in Australia is not large, Australia is the second largest orange exporter to Japan. As the harvest season is opposite to the northern hemisphere (US etc), there is little competition • High labour costs and the fruit fly issue are the negative issues. • Global Produce Solutions and other growers are potentially successful exporters to Japan • We are ready to assist by introducing and coordinating with importers

  26. Japan – Agribusiness Opportunities • Further opportunities exist for seafood, wine and some bulk items • Since 2004 the Tokyo Office has successfully introduced 44 WA wine producers to importers and retailers • WA wine has name recognition as premium wine, mostly due to Margaret River fame, but we are promoting all regions

  27. Kansai Region Opportunities • The Kansai region comprises includes the prefectures of Mie, Nara, Wakayama, Kyoto, Osaka, Hyōgo, and Shiga. The urban region of Osaka, Kobe and Kyoto (Keihanshin region) is the second most populated in Japan after the Greater Tokyo Area. • WA has maintained an active sister state relationship with Hyogo for 32 years – regarded as the model sister state relationship

  28. Kansai Region Opportunities • Opportunities exist in the following sectors • Infrastructure development • Environmental and energy technologies • Lifestyle and culture • Life science and biotechnology • Medical research • Robotics and aviation

  29. Kansai Region Opportunities • Successful market entry by WA industry in Kansai includes • Fashion and textiles – high quality valued tor – WA Banshu Fashion Textile Program • Biotech and medical – relative expertise recognised – Trilateral collaboration between UWA, Kobe University and Zhejiang University

  30. To the future… • Strong psychological impact • Olympic construction a stimulus

  31. Contacts Western Australian Government Department of State Development Tokyo Office Ms Amy O’Sullivan Craig Peacock Manager, Japan/Korea/Southeast Asia Commissioner North Asia Agency Level 6, 1 Adelaide Terrace, East Perth 14th Floor, Imperial Hotel Tower Western Australia 6004 1-1-1 Uchisaiwai-cho, Chiyoda-ku, Tokyo Tel: +618 9222 0465 100-0011 Japan Tel: +81 3 5157 8281 Web: http://wajapan.net Western Australian Government Kobe Office Ms Noriko Hirata, Regional Director 6F Golden Sun Bldg,4 chome 3-6 Nakayamate-dori Chuo-ku Kobe, Hyogo 650-0004, Japan Tel: 078-242-7705

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