Australia’s mining slowdown will set off ‘wave of consolidation’
Independent research consultants Business Monitor has released its latest findings on the prospects for Australia’s mining sector, and it’s not looking great.
Australia’s number one metals and minerals customer China is experiencing a marked economic slowdown and Business Monitor predicts investment in Australia’s mining sector will suffer a sharp pullback as a result.
Business Monitor forecast the value of Australia’s mining sector to reach $181 billion by 2017, growing at an annual average rate of 4.3% over the forecast period.
While that’s not a too shabby number it is in stark contrast to the average growth rate of 23.3% per year over the past decade.
No other country has benefited more from the Chinese-led commodity boom since the turn of century than Australia, which also helped turn the likes of Rio Tinto (LON:RIO) and BHP Billiton (LON:BHP) into mining’s supermajors.
The value of the country’s mining industry had increased more than six-fold from $24 billion in 2003 to $147 billion in 2012 thanks to a sharp rise in the value of its mineral exports – particularly iron ore and coal.
Added to rocketing prices – most notably iron ore which was trading at less than $20 a tonne ten years ago – the tens of billions of dollars of investment in new mining and export infrastructure projects saw mining’s share of Australia’s GDP rising from 4.5% to 9.6% over the ten-year period.
The mineral export boom is now over, says Business Monitor, and “Australia will be the biggest loser from the mineral imports shift in China”.
Factors “amplifying the downshift” in Australia’s resource economy include the rising tide of economic nationalism, declining labour productivity and aggressive minimum wage legislation.
There are some bright spots for Australian mining however including the country’s rich deposits of a range of commodities again led by iron ore and coal and including nickel, bauxite, copper, gold, uranium, diamonds and zinc:
Moreover, Australia’s mining sector is one of the most business-friendly in the world, with domestic companies and overseas miners operating in the country. Business Monitor expects Australia to remain a highly attractive destination for foreign investment, despite the introduction of a 30% super profits tax on coal and iron ore miners on July 2012. The proposed tax will not significantly affect the country’s mining sector as these concerns are likely to be outweighed by Australia’s rich mineral wealth.
Another spin-off from the mining investment slowdown, which is not just confined to Australia, is a forecast of “a wave of consolidation activity over the coming quarters as a growing number of miners come under pressure from weakening mineral prices.”