Has the Resources Boom in Australia Finally Burst?

So says today’s Sydney Morning Herald.

Apparently BHP announcing no further expansion of billions of dollars of projects is an ominous sign that the minerals boom (or bubble) has finally burst - or at least has seen its best days now in the past. Some are blaming taxes and government while others see it as just the natural progression of an industry with a finite capacity. Personally I think the mining industry in Australia has seen its better days but will depend on economic circumstances going forward - which aren’t looking too good, if China is the main buying customer of our resources and that country is experiencing some economic trouble. The Australian economy and the political/RBA reaction to it is going to get interesting as the mining industry abates. The fundamentals aren’t looking so great after all.

Olympic Dam on hold as boom peaks

AUSTRALIA'S biggest resources companies have revealed that more than $50 billion worth of expansion projects will not go ahead as planned, in the latest sign that the peak of Australia's resources boom has passed.

In one of the biggest corporate decisions of the year, BHP Billiton confirmed that plans for a $30 billion expansion of its Olympic Dam mine in South Australia and a $20 billion expansion of Western Australia's Port Hedland will not proceed.

The bombshells came on the day Woodside Petroleum indicated long-held plans to spend $5 billion doubling its Pluto gas project were unlikely to go ahead in the short term due to a failure to find enough gas off WA.


While the three massive proposals have not been permanently axed, all appear unlikely to be developed, as slowing rates of growth in China drag commodity prices down from their historic peaks of recent years.

Advertisement BHP had been due to approve both projects before Christmas, but confirmed yesterday that neither would be approved in the next 12 months, and more time would be taken to investigate cheaper ways of developing them.

The Olympic Dam decision is a symbolic moment in the decline of the resources boom, as it would have been the biggest open cut mine in the world and took seven years of painstaking work through design and approvals.

BHP's chief executive, Marius Kloppers, listed factors that had made the copper, gold, silver and uranium project less financially attractive: soaring construction costs, the high Australian dollar, sliding copper prices and the depressed outlook for uranium after the Fukushima disaster.

''It is the concept that we have been developing which is not viable given the current set of circumstances, particularly the capital cost of construction,'' he said.

The decision reignited debate in Canberra over the merits of the government's new taxes on mining and carbon.

Olympic Dam's minerals are not affected by the mining tax - which is levied on profits from iron ore and coal sales - but the Opposition Leader, Tony Abbott, who admitted last night he had not read BHP's statement, said the new taxes were a factor in BHP's decision because they had trimmed the total profits the company had available for new projects.

B HP Billiton's $30b expansion plans for its Olympic Dam mine site have been shelved

FEDERAL Resources Minister Martin Ferguson has declared the mining boom is over, putting him at odds with Finance Minister Penny Wong, who says it has a long way to go.

In the wake of BHP Billiton's decision to shelve its $30 billion expansion of Olympic Dam, Mr Ferguson told ABC Radio this morning: "You've got to understand, the resources boom is over. We've done well."

But that view was not supported by Senator Wong.

The finance minister, when asked whether she agreed with the resources minister, told ABC TV: "No, I think the mining boom has got a long way to run."

Senator Wong used the interview to accuse Opposition Leader Tony Abbott of running a dishonest fear campaign about the Olympic Dam decision.

Mr Abbott has said the government's mining and carbon taxes are partly to blame for the company's decision.
BHP had been warning the two taxes were making Australia a less competitive place to invest, he said.

Senator Wong said Mr Abbott was asking Australians to believe what he said was true even though BHP had cited other reasons for its decision.

"This is one of the most dishonest, self-interested fear campaigns that we have seen in Australian politics," Senator Wong told ABC TV.

BHP Billiton chief Marius Kloppers yesterday said the company was not going ahead with the massive open cut pit because of current market conditions including subdued commodity prices and higher capital costs.

reply to post by surrealist


I don't think so even though I have only just now got another job after being out of work for 2 months in Perth. I don't work in the mining industry but I do have skills and I have been supprised by the period of time I have been looking for work. Employers are now taking their time in the recruitment process.

A recruitment agent I spoke to said that while things have cooled down things will go on for a while yet. The agent stated that this cool off is not a bad thing when you have unskilled 19 year old kids making 100k a year. That's not to say that things wont change as I have read that we are in for a hard landing within two years.

The Au$ is to strong and nobody can afford our goods, the economy is falsely inflated.
Australia will go the same way as the US, our housing market is overpriced and people will walk away from mortgages very soon
Gillard has killed Australia.

Our best customer isn't doing too well...

China Flash PMI Plummets As New Export Orders Collapse To Lehman Lows

It was the best of times (US equities); it was the worst of times (the world's growth engine - China). HSBC-Markit just announced the Flash PMI for August and it's not pretty - printing at a nine-month low (47.8 vs 49.3 in July). Of course, China's own version remains in the Schrodinger-like >50-expansion state for now but with all 11 sub-indices in this evening's data pointing to weakness, we suspect not even the Chinese can sell that data for much longer. So what next - RRR? Massive stimulus? - don't hold your breath given the recent reverse repos and the already creeping-inflation in food and energy prices. The piece-de-resistance of the data-dump though has to be (in line with Japan's trade data last night) is the New Export Orders slumped to 44.7 - lowest since March 2009 when trade finance collapsed post-Lehman.

Can Australia's Economy Survive the Mining Scare?

Australia's Resources and Energy Minister declared the resources boom over on Thursday, pointing to tough times ahead for the country's economy, which has been powered by the mining sector for over a decade now. This has prompted the question: Is Australia resilient enough to grow without its main economic driver?

Economists tell CNBC that slowing investment in Australia's mining sector may push the export-oriented economy into a downward spiral as it struggles to transition away from resources to other lagging sectors for income.

"Nothing else is competitive in Australia," Andy Xie, an Independent Economist and former Morgan Stanley Chief Asia-Pacific Economist told CNBC. "So it's not going to be a smooth transition from the mining theme to other economic activities with Australia heading towards multi-year hardships."

There are growing risks that Australia could head into a recession as early as next year, according to Adam Boyton, Chief Australia Economist at Deutsche Bank, who says falling commodity prices will push the terms of trade — which measures the ratio of export prices to import prices — to fall by 15 percent by the end of the year.

"When we look back over the past 50 years, we've seen declines of the magnitude [in terms of trade] only five times. And in three of those five times, the economy has entered recession," Boyton said.

Concerns over Australia's economy come as global commodity prices like iron ore and coal hit record lows on falling Chinese demand — Australia's biggest export market — forcing the country's miners to put major projects on hold amid declining profits.

The world's biggest miner — BHP Billiton announced on Wednesday that it will halt plans for a $20 billion copper expansion in South Australia after it reported a 35 percent drop in second half profit from a year earlier.

While Australia's commodity boom may be far from bust with close to $500 billion resource investments in the pipeline over the next five years, doubts persist whether all that money will actually get spent. The pullback seems to be happening much faster than predicted by the Treasury Department, which said earlier this year that mining investments would ease from mid-2013.

Andrew Su, CEO of Sydney-based commodity brokerage Compass Markets says the amount of inquiries for the purchase and sale of commodity related assets in Australia has slowed significantly for his business in the past six to eight months.

"We would be getting two or three inquiries a week about the purchase of coal mine assets, and assets like that in Australia from Chinese related entities, to literally now, we don't get any," Su said. "I haven't got any over the past two or three months."

A combination of the high Australian dollar and a slowdown in the Chinese economy has made Australian assets a lot more expensive to overseas companies, according to Su.

As the mining construction boom winds down in Australia, Michael Blythe, Chief Economist at Commonwealth Bank of Australia says, the economy will slow down if Australia doesn't find other sources of growth.

"Mining construction will peak probably towards the end of 2013, so that means 2014 is when the downturn should start," Blythe said. "We will be looking for other sources of growth and if we don't get them, then the overall economy will slow."

reply to post by borntowatch


You cannot blame Gillard, you can accuse her and hate her for many justified reasons, but this isnt her fault.
Unfortunately, this was the natural progression we were ALWAYS going to go through.
The mining boom was like giving a young kid 10kgs of sugar.. we went nuts..

No matter who was in charge, it was going this way.

Why? normal people are greedy.

Tell me, how on earth can a 4x2 brick and tile home in the burbs have cost $220,000.00 6yrs ago be upward of $600,000.00 today??

I think there's more to this BHP decision to can the upgrades to Olympic Damn.

Now, while I agree the mining boom is slowing, its by no means BUST! Just ask Twiggy...
Also, I work for a mining company, and we had a 30something % profit increase in the last 3 months, with much more to come.

The Aussie $ is through the roof, making our exports cost more.
China has slowed, but has indicated it will take measures to keep the drive going.
Also, there's a hell of a lot of uncertainty at the moment all over the planet, i cannot blame BHP For deciding a project to build the WORLDS LARGEST open cut mine on hold...

lets not panic yet!

Yes I can blame Gillard
The stupid Green lead mining tax and carbon tax has cost investment.
The parasite states in the East are blood sucking leeches no better than charity states for Qld and WA to prop up.
SA and the NT would be seeing big mining money investment if Gillard wasnt serving the Greens.

Gillard sold her soul and the country (to the greens) out to be PM sending us broke.Our economy has collapsed, the carbon/mining tax was the start of the downhill slide. Its over, just like the US.

reply to post by borntowatch


Just so long you don't believe Abbott will be much better. That freak is gonna screw this country over as well, but he will run an effective media campaign to convince blind partisan Australians that's it all the fault of youth and pensioners and whoever else they can kick in the guts and get away with it.

reply to post by borntowatch


I have to agree with "the chop's" response above. first of all i cant stand julia gillard. but....this was coming way before labor come into power. didnt matter who was in...it was coming. the only thing i can say is that labor has hastened what has happened with their willy nilly throwing around of the money.

as a country when john howard left we were in the black...with a billions in a future fund - all gone. i believe he and costello knew what was coming and had put the money away for a rainy day.

that has all gone now on generous cash stimulus bonuses to families, pink batts and useless school buildings.

if you follow all this sort of thing you realise that all the world has been doing since 2007 is kicking the can further down the road. time is coming when you have to pay the piper.

i must say the thing that worries me is the best way for the world to get out of the dire financial prediciment is war.

i am NOT a war mongerer so its hard for me to think this but its true i believe. trust me...my mid teenage sons will not be fighting in any world war either.just so the world can reset its financial clock.

Originally posted by surrealist
reply to post by borntowatch

 

Just so long you don't believe Abbott will be much better. That freak is gonna screw this country over as well, but he will run an effective media campaign to convince blind partisan Australians that's it all the fault of youth and pensioners and whoever else they can kick in the guts and get away with it.

I think we are very much like the US, we will get one retarded politician for if the other falls

Originally posted by borntowatch

Originally posted by surrealist
reply to post by borntowatch

 

Just so long you don't believe Abbott will be much better. That freak is gonna screw this country over as well, but he will run an effective media campaign to convince blind partisan Australians that's it all the fault of youth and pensioners and whoever else they can kick in the guts and get away with it.

I think we are very much like the US, we will get one retarded politician for if the other falls

Yep that's about it. Two sides of the same idiotic coin.