Will the resources sector continue to ‘boom’?

Well, the experts certainly think so.  If you have any interest in the resources sector, arguably the best source for information is the Bureau of Resources and Energy Economics (BREE).  Their most recent forecast for the 2011/12 financial year is a 15% increase in the value of Australian energy minerals and metals over the previous year, bringing the total value to over $200 billion which is a record for export earnings.

The number and value of advanced resources projects is at an all time high with most of these projects located in Queensland (31) and Western Australia (40).

 

Additionally there are a further 404 ‘less advanced’ projects that are either undergoing feasibility study, awaiting approval or awaiting final investment decisions.  These include 14 proposed LNG developments which have the potential to add 75 million tones to Australia’s annual LNG production capacity.  BREE also point out that there are 15 less advanced iron ore projects which have an estimated capital expenditure of $1 billion or more.

In their ‘Resources and Energy Quarterly’ for December, BREE outline their forecasts for the sector and acknowledge there is some risks based on the global economic woes, specifically European sovereign debt and the liquidity crisis.  Additionally there has been some weakening in the spot prices for key commodities such as iron ore and metallurgical coal.

The bulk of the demand for mineral and energy commodities will continue to be supported by China, India and other non-OECD economies.  Within the OECD, demand for Australian commodities is likely to be strongest in Japan where the infrastructure spending post earthquakes and tsunami will be high.  Economic growth is likely to slow across our major export markets (China GDP is projected to ease to 9%, India’s economic growth is expected to slow to 7.5% and Japan’s economy should increase by 2.3%) however BREE have suggested the improved economic conditions in the ASEAN countries, where GDP growth is expected to be around 5.5%, should offset any slowdown in export growth.

Growth across the sector will be accompanied by employment growth.   The size of the mining industry work force increased 19% during 2010/11 and is up by more than 170% over the past decade.

BREE is forecasting improved performances in the volume and value of key Australian commodity exports.    Exports of iron ore, which is Australia’s largest commodity market, is forecast to increase by 13% in volume and 11% in value.  The export of metallurgical coal, the second largest commodity export, will rise by 7% in volume and 13% in value.

Based on the above information it looks like the resources sector will continue to benefit from ongoing demand for Australian commodity exports.   A direct benefit will continue to be seen in those housing markets that are closely tied to each of the respective commodity markets and the major service centers that provide essential services and a large component of the labour force to the mining regions.  Mining related investments are of course very sensitive to movements in commodity prices and global demand; however there doesn’t appear to be any cracks emerging in these markets just yet.

The indirect benefit, of course, will be seen in robust local economic conditions and a continuation of the two speed economy.  The most recent forecasts from the RBA show GDP growth at 4% by June 2012 before easing to 3-3.5% by December 2012 and underlying inflation tracking around 2.5% to 2.75%.

About Tim Lawless

Tim heads up the RP Data research and analytics team, analysing real estate markets, demographics and economic trends across Australia

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4 Responses to Will the resources sector continue to ‘boom’?

  1. Jeff January 9, 2012 at 11:28 pm #

    Quite impressive data there. I had to double check that the info actually came a government department and not a mining industry lobbyist or partisan group. The challenge now for all levels of government is to pre-empt the increased demand for housing with timely and proactive measures to increase supply.

  2. Anton January 10, 2012 at 2:46 pm #

    Interesting, but I’m finding research across this topic to be inconsistent with one another (not surprising there) to a point where it’s contradicting. This is especially obvious when discussing iron ore prices. For example, in your article you mention that there is going to be an “increase by 13% in volume and 11% in value” for iron ore, however the following article – http://www.miningaustralia.com.au/news/iron-ore-prices-to-soften-in-2012 shows the exact opposite – a decrease of nearly 11%!

    What are your thought son this Tim? Is one party simply trying to be overtly optimising (i.e. the Australian Government) or the other too pessimistic? Or is there something behind the data that I’m missing here? 🙂

    • Tim Lawless January 10, 2012 at 3:25 pm #

      Thanks for your comments Anton. Like any forward looking research, its not uncommon for forecasts to be inconsistent (and the extreme uncertainty that exists at the moment surely doesn’t help the cause). Keep in mind that forecast was for 2011/12 and the report does state that iron ore prices are likely to fall during 2012, however the fall will well and truly be offset by the rises recorded over the second half of 2011 (see here on page 41): In 2011–12, Australia’s exports of iron ore are forecast to increase by 13 per cent, relative to 2010–11, to total 460 million tonnes, largely as a result of higher production at projects in the Pilbara region of Western Australia. Australian export earnings from iron ore in 2011–12 are forecast to increase by 12 per cent, compared to 2010–11, to total $60.4 billion. Higher export volumes and contract prices in the second half of 2011 will more than outweigh the forecast lower contract prices for the first half of 2012.

      Cheers, Tim

  3. Antony Shingler January 11, 2012 at 8:54 pm #

    Hi Tim

    Following the persistent gloom regarding sovereign euro debt and the troubles in the US and the UK, its encouraging to read your report. Having rental property investments in the Pilbara region, I have always thought as a property investor that the blue chip mining companies (who have committed so much investment funding) must have a reasonable expectation of making a positive return for their shareholders.

    I’ve read about China’s internal growth and the migration from rural areas to cities. And with their huge infrastructure development its easy to understand their iron ore requirement will not peak until 2014 and then will take a few years before starting to decline. India whose population is likely to exceed China’s is about 14 years behind in its growth transformation.

    Commentators often like to remind us of the boom and bust cycles in mineral and resources, but this is different as its not a boom, but a transition in our economy, affected by the changes and demands from Asia, China and India.

    As several government ministers regularly articulate, Australia is in the right place at the right time.

    Cheers

    Antony Shingler
    MyProp.com.au

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