CANBERRA/MELBOURNE: Australia declared the top of the resources boom, which had cushioned the country against the global financial crisis, a day after the world’s biggest miner BHP Billiton shelved two major expansion plans worth at least $40 billion.
One minister went as far as calling the end of the resources boom, but later rowed back to say commodity prices had peaked while investments in multi-billion dollar projects would continue, especially in the energy sector.
“This construction boom will continue, but the days of record commodity prices are gone,” Resources and Energy minister Martin Ferguson told reporters on Thursday.
“We’ve done well – A$270 billion ($282 billion) in investment, the envy of the world. It has got tougher in the last six to twelve months,” he said earlier on Australian radio.
Ferguson’s comments came after BHP scrapped plans for a $20 billion-plus expansion of its Olympic Dam copper mine in South Australia and a new harbour, estimated at more than $20 billion, to nearly double its iron ore exports in Western Australia.
Fuelled by Chinese-led demand for its coal, iron ore and other resources, Australia’s economy was one of the very few in the developed world to sail through the global financial crisis without sliding into recession.
But with China heading for the slowest pace of annual growth in more than a decade, investors are nervous about the near-term outlook for miners.
The resources boom has fuelled what has been dubbed a two-speed economy, which has pumped up the local dollar and exacerbated the pain felt in manufacturing and retail in Australia’s most populous states.
While manufacturers, like Ford and Bluescope Steel , have cut production and axed jobs, unemployment has stayed at around 5 percent, thanks to jobs growth in resources projects, where truck drivers command six-figure pay packets.
Olympic Dam alone would have created 25,000 jobs, South Australia’s government said.
Fear may be premature
Politicians may be worried the whole economy is moving into the slow lane, but analysts say the fear is premature, as energy projects will continue full steam ahead.
National Australia Bank does not see the boom peaking until 2013 and 2014, when resource capital spending will be around 1 percent of gross domestic product higher than now.
Finance Minister Penny Wong also played down fears of a collapse in the mining boom, saying the government has factored in a peaking in Australia’s terms of trade, which measures the difference between export earnings and import costs.
“We’ve still got a long way to run when it comes to this investment boom,” Wong told Australian radio.
“We’ve got over half a trillion dollars of investment, and over half of that…is at the advanced stage. So I think the ‘doom and gloom’ that some are putting about isn’t appropriate.”
Ferguson’s warnings on the mining boom may also be a response to opposition attacks blaming a new carbon tax for BHP’s woes. Well behind in the polls, the government is trying to claw back voter support ahead of an election due next year.
Seven out of eight of the 10 biggest resources projects under construction will produce LNG, ranging in scale from $5 billion to $43 billion, according to Deloitte Access Economics.
BHP put the Olympic Dam expansion on hold as it reported a 35 percent slide in second-half profit, the biggest sign of the pain inflicted by China’s slowdown.
Weaker demand from China has knocked prices of all key commodities, including iron ore, languishing at its lowest levels since December 2009, copper, coal and aluminium.
BHP and companies that work with the miners, such as rail transporter QR National, say while they are cautious on the near-term outlook, they expect demand growth in China and India to underpin growth in the medium to long term.
Miners put bakers on capital spending
In response to pressure from shareholders worried about poor returns in a weak global market, miners have put the brakes on capital spending, with BHP on Wednesday announcing it would not sanction any major new projects in the year to June 2013.
BHP Chief Executive Marius Kloppers blamed soaring project costs, the high local dollar and falling commodity prices for squeezing expected returns, noting capital costs on Western Australia iron ore projects were up seven-fold in 10 years.
But both BHP and QR National stressed they were still going ahead with existing projects, with BHP expecting to increase production by 50 percent at its coal mines over the next three years and QR National boosting its rail capacity by 30 percent.
“Please understand that we have not pared back our capex. Our capex in the next year will be 10 percent higher than the capex in the last 12 months,” Kloppers said on Wednesday, pointing to the $22.8 billion in projects going ahead in the year to June 2013. But not all of that is in Australia.
World no.2 iron ore miner Rio Tinto is also going full steam ahead with iron ore expansions.
Smaller miners are the ones more likely to be hit, as lenders hesitate to back projects built on lofty forecasts.
“There are many expansion plans that will not see the light of day in the current economic climate,” Neville Power, chief executive of Australia’s no.3 iron ore miner, Fortescue Metals , told reporters on Thursday. ($1 = 0.9576 Australian dollars)