Monday, August 27, 2012

Australian Mining Boom Peak Years Away


THE government's efforts to talk up the longevity of the mining boom will be boosted today by an influential report that predicts mining industry investment is still several years away from peaking. 
And the report by economic forecaster BIS Shrapnel predicts other sectors of the economy will lift to fill the gap when the mining sector inevitably slows.

A series of cabinet ministers insisted yesterday the mining boom had further to run, in an attempt to counter fears of a slowdown after BHP Billiton's decision last week to shelve its $30 billion Olympic Dam expansion and Resource Minister Martin Ferguson's controversial declaration that the boom was over.

Against a dreary outlook for the prices of Australia's key exports, BIS Shrapnel believes the value of contracted resource projects means mining investment would not peak until 2014, with Queensland and Western Australia tied up with major projects for three to five years.

"After that, non-mining investment will stabilise and start to pick up, taking over as the engine of growth and smoothing the transition," says the BIS report, to be released today.

It suggests lower interest rates will boost retail spending, which had been held back by low confidence and weak demand rather than the Australian dollar.

"Over time, capacity constraints outside mining, such as those already evident in the construction sector, will prompt a broadening of investment beyond mining," it says.

Frank Gelber, chief economist at BIS Shrapnel, said the realisation that the investment mining boom was finite would cause people to "overreact on the pessimistic side".

"All of a sudden, the glass seems to have become one-quarter full, but nothing has changed," he told The Australian in a reference to Reserve Bank governor Glenn Stevens's optimistic glass-half-full depiction of Australia's economy.

"Our report aims to dispel some of the panicky discussion about the end of the boom," Mr Gelber said, predicting economic growth of 3 per cent this year and next.

BIS Shrapnel believes continued strong commodity prices will keep the Australian dollar high "for a few more years", putting pressure on other trade-exposed industries.

Trade Minister Craig Emerson said yesterday the mining boom was not even halfway through, while Workplace Relations Minister Bill Shorten noted that his department was projecting that another 100,000 jobs would be created in the mining industry over the next five years.

"Mr Ferguson is right: we might have reached the peak in prices, but volumes are still increasing and there are still plenty of projects," Mr Shorten said, attempting to paper over any divisions in cabinet.
"I don't think that the contribution that mining is going to make in jobs and economic output for Australia has at all peaked." Wayne Swan said the mining boom was better understood "as a series of booms - a boom in prices, a boom in investment and a boom in exports".

The Treasurer said that while the price boom had passed its peak, "the investment boom still has some way to run" and the Bureau of Resources and Energy Economics had forecast commodity export earnings to reach a record $209 billion this financial year as higher volumes offset lower prices.

JPMorgan chief China economist Haibin Zhu, visiting Sydney last week, told Sky Business's Australian Business on Friday night Chinese demand for Australia's resources would slow but remain at a very high level over the next five to 10 years.

"What follows the recent boom is going to be far from a bust," he said, pointing out the Chinese government was intent on stabilising the country's growth at a lower but more stable level.
He warned that China's one-child policy would sap its potential economic growth rate by about one-quarter within the next five to 10 years.

"The share of working-age people in the population is shrinking and the number of workers will start to decline in the next few years," he said.

Mr Gelber also dismissed the impact of the carbon tax on BHP's decision to shelve its Olympic Dam copper, gold and uranium mine expansion, arguing it would go ahead once construction costs eased. "Such a long-term project means it is hard to predict ultimate prices and demand," he said.

Mr Swan said he was "pleased" to see discussion about the longevity of the mining boom. "But behaving as if the investment pipeline has suddenly run dry is not only false, it's irresponsible," he said, pointing out the Reserve Bank governor had said mining investment would not peak for a few years yet.