Is the Current Australian Mining Boom Already in Trouble

It’s an important question, an entirely valid question and one that needs to be answered for this simple reason: mining accounts for a full 7% of all economic activity in Australia.

If mining suffers through a slow period, it can impact the country’s economy and its people – in a big, big way. And that may be happening right now. Here’s why …

Chinese steel mills have been cutting production in response to lowered demand for their products. That hurts Australia’s mining companies because China is a major buyer of raw materials. In fact:

The result of this reduced production has been that prices have plummeted for Australian iron ore and coal, two of the country’s top exports.

Take a look at the numbers. The price for Australian-mined iron ore is now about half what it was in January, 2011 … not too long ago. Coal has lost about one-third of its market value in just the last three months.

On the surface, this is very disturbing news. If the slowdown continues, it is certain to impact Australians by damaging the national economy. But … there is a silver lining.

Industry observers have stated that prices are likely to rebound – quickly – if Europe recovers from its economic malaise and if China’s steel mills increase production.  The likelihood that each of these two changes will occur is strong. The question is: how long will it take for these improvements to take place?

That is, of course, a difficult prediction to make … even for industry professionals. However, most analysts agree that the reduced demand and lower prices for raw materials will not be a long term problem.

That said, many investors in mining companies remain pessimistic about the short-term future. In fact, David Hand, head of Sydney-based Newport Consulting, stated recently that falling commodity prices continue to inhibit new investment thereby slowing growth and the start of new projects.

The slowdown has affected even big and wealthy firms. BHP Billiton, Ltd., the world’s largest mining company has just “put on ice” a $30 billion dollar (US currency) expansion of its Olympic Dam mine. Deepak Fertilizers, Ltd., an Indian company has also “frozen” a project to build an ammonium nitrate plant in the same area – near the Olympic Dam mine.

Fortunately, the news is not all bleak. Australia is economically strong enough to weather the mining slowdown. It is one of the few developed countries able to avoid the worldwide recession after the global financial crisis.

Moreover, the country has been enjoying solid growth … low unemployment … manageable inflation … modest and afforable interest rates … healthy consumption … and an anticipated annual growth rate of 3%.

Best of all, new mining projects are in the pipeline and scheduled to begin within the next twelve months.

That is good news for the mining industry … for Australia …and for its people.

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