North Australia Weekly Digest – 24/05/2013

The Australian
According to a Newspoll conducted in the week before the federal budget, a huge ninety-six per cent of all Australians believe the mining industry is important to the economy and a further sixty-nine per cent view the mining industry favourably. “I think every person understands that the resources industry is vital to our economic wellbeing and ultimately everybody benefits from a successful resources sector in terms of income, jobs and government revenue,” Nimrod chairman and former Queensland treasurer Keith De Lacy said. Anglo American Australia chairman Graham Bradley said that mining underpinned Australia’s prosperity.
The Bureau of Resources and Energy Economics has forecast that Australia is set to see a major decline in resources investments, with estimates they are likely to drop by more than two-thirds over the next five years. In the past 12 months alone, almost $150 billion worth of projects have been delayed, cancelled or scaled back. BREE said investment may be higher than projected if the rising cost of building and running mines in Australia decreases. “The decline in the number of committed projects reflects the emerging trend for high-value projects at the feasibility stage to be delayed or cancelled,” BREE executive director Quentin Grafton said.
An Ernst & Young report has signalled commodity price volatility will continue to test the mining sector over the next few years. The report said the situation may be exacerbated as high cost, low-grade projects continue to be downgrade or closed down due to low overall returns. “Until the supply-demand equilibrium is restored, we expect to see price volatility as the new normal,” the report said.
The Australian Financial Review
Reserve Bank of Australia board member Warwick McKibbin has warned that the US shale gas revolution will accelerate Australia’s slowdown in the resources sector when the resource is moved to export markets from 2016. McKibbin urged the government to rethink its economic framework, blaming irresponsible fiscal policy, high labour costs, and onerous regulation for hampering the private sector and hurting Australia’s competitiveness. “The trouble we now face is that we’re going to have the structural adjustment…at the time we don’t have the fiscal capacity to pay for it because the government spent far more than it earned in revenue,” McKibbin said.
China has moved to ban low-quality coal imports as part of a raft of environmental changes, including a cap on carbon emissions. The decision will likely benefit Australian miners given the higher quality of coal they produce, which could help to push prices up. “The ban has the potential to remove excess supply capacity which we expect would help prices strengthen,” said Wood Mackenzie analyst Prekash Sharma.
Citigroup analysts expect iron ore prices to fall even further as the commodity super cycle comes to an end. Steel oversupply and mill destocking has contributed to a 13 per cent fall in the iron ore spot price over seven consecutive trading days, but Citigroup’s global commodities team expects that weaker demand and increased supply drives will put further downward pressure on the resource, particularly as China moves away from infrastructure and urbanisation over the next decade.
Similarly, analysts have said China’s slowing demand, increased competition and global oversupply will continue to weigh down coal prices this year. “A rise in Mongolian and Canadian exports to China has taken some of the market share from Australia; both suppliers are able to undercut Australian prices,” said Natalie Rampono, an ANZ commodity analyst. This would put more pressure on prices for higher-grade, more expensive Australian coking coal.
The West Australian
The next phase in a deal that will allow huge Chinese investment in the east Kimberley is set to be cleared by the WA state government before the end of the month. The move will see Chinese company Shanghai Zhongfu, trading in Australia as Kimberley Agricultural Investments, commence work on land in the Ord River irrigation scheme, primarily focusing on sugar. The government hopes this will be a major economic boost for the region, with a proposed $700 million of investment over the next six years.
Austrade chief executive Bruce Gosper believes the mining services sector can overcome the recent decline in Australian demand by exporting its expertise to overseas resources developments, particularly in Asia and Africa. In an address to an Asia Society function this week, Gosper promoted deeper engagement with our Asian neighbours on all levels, including a greater understanding of culture and language.
Economists have warned that the mining slowdown could result in Western Australia being pulled “back to the pack” after years of being Australia’s economic powerhouse. Merril Lynch chief economist Saul Eslake said there was risk of a “noticeable and bumpy” slowing, which is reflected in employment figures and slower growth.
The NT News
High-ranking Chinese diplomats have told a mining summit in Darwin this week that the Chinese government plans to expand trade in the Northern Territory, particularly in energy and minerals. “China’s business pace will be reaching out beyond China’s territory,” said Chinese embassy official Qui Deya. “Energy and resources will be a very important sector for Chinese businesses coming to Australia”. Chief Minister Adam Giles said as the “Australian capital of Asia”, Darwin should always be looking to advance its ties with its closest neighbours and trading partners.