Port Kembla sale to beef up port capacity

The decision to make Port Kembla Port Corporation the second container port in NSW and that it will be sold for about $500 million on a 99-year lease, or in conjunction with the $2 billion-plus Port Botany, is designed to get maximum interest and top dollar.

From October the data rooms will be ready for what is expected to be a strong line-up of interested parties, believed to include the world's second biggest shipping company, China COSCO Holdings, shipping giant Maersk Group, the Indian conglomerate Adani, which is bankrolling a $10 billion coal project in Queensland's Galilee Basin, as well as super funds and global infrastructure funds.

All governments will need to sell assets as they hit borrowing limits.

In the case of Port Kembla the sale will set the asset free to allow it to fulfil its potential rather than being financially constrained by competing budget and political decisions. It will also dovetail into the NSW government's transport master plan, to be released in November with a focus on freight.

Since Whitlam took the chair of Port Kembla Port Corporation in 2005 he has been lobbying for government funding or private sector interest to develop the port and rail track. He has succeeded to some degree but in private hands with access to private funding it would have had a more dramatic transformation, including investing in the Maldon-Dombarton railway line, which dates back to Neville Wran's time as premier and was left half-completed by Nick Greiner's Liberal government in 1988.

Port Kembla needs more than $1 billion for a port similar in capacity to Port Botany and another $500 million to complete the Maldon-Dombarton rail line to link the port and city. This would provide an alternative export-import location to alleviate bottlenecks at Sydney and Newcastle. Port Kembla, which is one of the state's three main international trade ports, is about 80 kilometres south of Sydney's CBD and 60 kilometres from Sydney's south-western suburbs. Total trade through Port Kembla has reached 33.6 million tonnes representing $13.5 billion in value.

Yesterday there were 11 ships waiting to come into Newcastle and another 72 ships with "notified arrival time allocated and in transit", which is a tricky way of avoiding attention-grabbing headlines of bottlenecks. Many are ready to load but are forced to hang around out of the public gaze.

A REPORT released in the US on Friday on high-frequency trading has set the cat among the pigeons in global equities markets as it challenges several studies that say HFT cuts costs for investors.

The report, released by Pragma Securities, has gone viral on the internet, as it picks up on a share trading phenomenon that remains a mystery and a concern to regulators and retail investors.

The idea of an exchange as a physical place where people come together to buy or sell shares is long dead. So too is the definition of what constitutes long term. Automated trading has grown rapidly as equity markets fragmented across multiple venues.

It has become a technological race for relevance and survival as trading technologies make it possible to buy and sell shares in milliseconds or less.

In the US more than 50 per cent of equities and derivatives volume is based on HFT, compared with Australia, where it is a relatively new phenomenon and accounts for an estimated 20 per cent of volume.

Globally regulators are concerned that markets are being manipulated by computer trading, with many blaming the May 2010 flash crash in the US on HFT, when the Dow Jones fell 1000 points, or almost 10 per cent, only to recover within minutes.

The Pragma report argues that some of the most heavily traded US stocks might also be among the most expensive to trade. It puts a figure of $US2.5 billion a year on the cost to investors. It argues that the most popular stocks among high-frequency traders, including Bank of America, Microsoft and Ford Motor Company, make it hard for long-term investors to quickly buy and sell the stocks, which raises the costs for everyone.

"In contrast to the academic consensus view that high-frequency trading is benign, our research shows that there's a significant cost to the liquidity that they're providing," said Pragma boss David Mechner.

The report flies in the face of the typical argument that HFT reduces trading costs by making it easier for investors to buy and sell. It illustrates that costs initially fall as trading volumes rise but as average volume continues to rise, so do the costs and time to execute.

In Australia, where trading is drying up due to a lack of real volume in the actual markets, HFT can virtually push the market, or stocks, to positions where it wants.

Trust in the financial markets is at an all-time low and the markets are at a turning point. Technology, market structure and new products have evolved more quickly than the regulation. Where and when it will all end, time will tell.