Australian mining service companies in dangerous decline

Australia's central bank warned the country's national resources sector the future of companies servicing the mining industry is suffering a decline which has serious implications for the economy, reports the Australian Broadcasting Corporation.

Global financial conditions have improved significantly, however, the recent rise in the market may not last long, the Reserve Bank said in written statement Wednesday. It's too soon to tell if the improved sentiment is the beginning of a sustained recovery — mining services companies are especially threatened.

The bank cites the sharp earnings decline and the scaled-back investment expenditure plans of the listed mining sector as the reasons why services companies' actual and expected earnings have decreased.

Global investment firm UBS said companies servicing explorers are the hardest hit — it pegs a significant drop in business for them for two to five years.

Some companies, like equipment manufacturer Valley Longwall International, have seen about a 30% decline in revenue during the last 12 months as a result of a stoppage of new mining projects. It has already laid staff off and may have to do so further.

Finance professor and entrepreneur Michael Pettis told ABC the mining sector and related industries are heading into an extremely difficult phase.

He said investment growth will slow down significantly and maybe even go negative. Chinese demand for iron ore, copper and other minerals, will also decrease hurting the commodity export sector which is very important to Australia's economy.

Image: Blastcube via Wikimedia Commons