How are Australian Resources fairing since the Election?

Tony Abbott promised on winning the election that he would ‘reboot’ the mining boom.

Understandably there are concerns within the government about future projects being planned by some of Australia’s largest mining companies and their inability to raise the necessary finances for their projects to go ahead at this time.

The Australian government is concerned about the prospect of a drop in mining investments and its effect on budget revenues, already tracking below levels forecast before the election.

Decisions in the past year by miners to shelve major projects such as BHP Billiton’s expansion of the Olympic Dam mine in outback South Australia, Caterpillar cutting a further 200 jobs from its Tasmanian Burnie mine, further BHP Billiton withdrawal as the preferred developer of terminal 2 at the Port of Abbot Point plus they’ll not go ahead with the rail line linking the port with Bowen Basin mines, representing a loss of $5 billion.

Add to this about $150 billion worth of resource projects that have already been shelved, while at the moment some of the country’s biggest future resource projects are coming up to the stage where a decision will have to be made regarding their viability.

This news has prompted the former Labor government to argue the ‘investment stage’ of the mining boom was over.

The Treasurer Joe Hockey recently argued that the Liberals benchmark policies to dump the mining and carbon taxes were crucial to growth.

“Getting rid of things like the mining tax and the carbon tax will help to grow the Australian economy, there is no argument about that,” Hockey said.

“You have got to get rid of the speed humps.

“Speed humps are excessive regulation, excessive taxation and ultimately poor, inconsistent government. We are addressing all of those things.”

 

Already industry leaders are fearful that the high dollar plus the threats by the Labor and fringe parties to block the purposed reforms when they reach the Senate, with the appreciating dollar meaning that ‘returns are dropping’ for investors and this makes it important to directly address the underlying issues of economic reform.

The parliament needs to allow the government to carry through on its elect rial promise of reform irrespective of the agenda of defeated or fringe parties!

While this Australian internal struggle is taking place we are losing ground to the increasingly completive pressure from South/North America plus Africa.

So is it all gloom and doom?

Well not really, because there keeps coming snippets of good news from different sectors of the resources industry, for example Iron ore exports from Port Hedland were almost unchanged in October, with in fact a jump in shipments to China but this was balanced by lower deliveries to Japan and South Korea.

Port Hedland being one of the world’s largest iron-ore export terminals announced the encouraging news that October’s exports to China rose 10 per cent to 25.2 million tons.

While BHP-Billitton, raised its outlook for full year iron ore production following a reported record output from the expanding Pilbara mining hub in Northwest Australia.

With continued media reporting of China’s economy slowing down being at the moment proving wide of the mark, in fact the September iron ore exports hit a record 74.6 million tons, which is up 15 per cent on the year.

Compared with year earlier volumes, exports via Port Hedlands in October are 33 per cent up, with shipments to China being 43 per cent higher.

According to one of China’s top corporate officials, Xiong Weiping, head of Chinalco, China is still in the midst of the urbanisation process with several decades to run while still demanding the continued strong demand for minerals.

Chinalco is China’s largest nonferrous metals enterprise principally engaged in mineral resources development, nonferrous metals smelting and processing, related trading as well as engineering and technical services.

Chinalco is the world’s second largest alumina producer among many other strings to its bow, so Xiong Weiping knows what he’s talking about.
 
In words that will be of comfort to Australian iron ore exporters, he said that 52 per cent of the Chinese people now live in urban areas and that rate has been growing by about 1 per cent each year.

Based on the current speed, urbanisation will continue to boost China’s domestic demand for at least the next 30 years before it reaches the rate of 80 per cent, was his conclusion.

Confidence has picked up a little with the end of what seemed a never ending election period and as concern over the ‘end of the mining boom’ has receded.

For a while, the focus was on the damage to the economy.

But those fears have receded with the recognition that the impact of falling resources investment will be offset by growth in minerals production and exports.

We seem to be reconciled to be operating in an environment of continued slow growth.

And, with the prospect of tight expenditure and falling public investment adding to the negative impact of falling private resources investment, that’s what we’ll have to look forward to until the next economic spike comes along.

Clearly the residential market has picked up in the last few months since the election, but only in certain regions.

That’s not enough by itself, to boost national growth.

While there seems little prospects of any easing of the determination with which cost cutting is being pursued in either the private or public sectors.

The extent of spare capacity suggests continued deferral of any upturn in non-mining business investments which will need to be underwritten for stronger growth.

On the surface there looks to be at least two years before things start to move again.

The dollar has slightly fallen, but still remains too high, this delays the structural changes that will be an essential ingredient to rebalance the Australian economy back towards domestic trade exposed industries.

The fall has helped to take the pressure off Australian Exporters, but not enough to stimulate growth.

Renewed investor confidence is tending to strengthen the dollar. That’s not good.

So how is Australia going since the Election?

Australian consumer sentiment lifted 1.9 per cent this month to a three-year high.

This month’s report comes after two massive lifts in August and September, with consumer sentiment rising a whopping 4.7 per cent after the Federal Election.

Westpac Melbourne Institute Index of Consumer Sentiment lifted to 110.3, suggesting that consumer confidence is on its way back to July-December 2010 highs.

Similarly, business confidence – measured by NAB’s monthly business survey – rocketed immediately after the election but fell back down in October according to data released last week, suggesting that business and consumer confidence hadn’t yet translated to better trading conditions.

Westpac’s November survey interviews were conducted during the Melbourne Cup week, when the Reserve Bank kept rates on hold and the unemployment rate held at 5.7 per cent.

Westpac chief economist Bill Evans noted that while the official unemployment rate held, the October labour force report actually depicted a ‘very weak labour market’, reflecting in an unemployment expectations sub-index rising 0.9 per cent to 144.7.

Interestingly, while this month’s unemployment expectations are 11 per cent above the November 2011 level, the broader consumer sentiment index is up 6.7 per cent compared to November 2011.

“In effect, despite the Reserve Bank reducing interest rates by 225 basis points since November 2011 and Consumer Sentiment increasing, respondents are more concerned about the outlook for unemployment, and by implication job security, than was the case two years ago,” Evans wrote.

Reports of surging house prices also boosted confidence among homeowners, with confidence among outright homeowners up 6.1 per cent, although renter confidence fell 2.8 per cent.

Home buying intentions rose 4.2 per cent in the month, while still down 3.1 per cent year-on-year.

 

So how does Tony Abbott’s government rate for its first report?

The answer of course is that it’s too early to tell, there are some strong indications that things are improving, business is feeling a little more secure but until the world feels more confident our resource sector will have a hard struggle to regain consumer confidence, irrespective of which government is in power!

But the thing to remember is that there will always be another Sirius Resources just over the Horizon.

This article first appeared in The Digger newsletter