|
|
|
|
Will Australia's China-driven
mining boom last?
SYDNEY -
The Chinese-driven boom in Australian mining
exports has, to quote Australian federal treasurer
Peter Costello, helped the economy thrash the
pants off other Western nations. Surging prices of
iron ore and coking coal have helped Costello
deliver his job application for the prime
ministership - a budget surplus and tax cuts.
But what goes up must come down, and
analysts are pondering when and by how much
industrial input prices will fall after dramatic
rises this year. In April mining titans BHP
Billiton and Rio Tinto stunned the market when
they announced steelmakers had agreed to a 71.5%
increase in the iron ore price, on the back of a
19% increase last year. Coking coal, a raw
material used in steel production, has also risen
spectacularly, climbing 120% to US$125 a ton.
Elsewhere, copper recently hit a 16-year-high, and
uranium prices have more than doubled since the
beginning of 2004.
Most analysts agree
this is the top of the commodities cycle. The
debate is about how much, not whether, prices will
fall over 2005-06. UBS resources analyst Glyn
Lawcock says the falling price of steel
foreshadows a significant drop in raw material
prices. "We are still seeing continued weakness in
steel pricing and we think, at some level, it will
work its way back up the chain to the raw material
suppliers," he said. UBS expects iron ore prices
to drop by 20% next year and coking coal prices to
fall by $15 per ton. Dr Lawcock says for now the
Australian market is protected by its practice of
locking in 12-month contracts, but prices will
fall next year.
However, Merrill Lynch
says iron ore prices will increase by 5% in
2005-06 before falling 10% in 2006-07 and then
another 20% in 2007-08. And the government's chief
forecaster, the Australian Bureau of Agriculture
and Resource Economics (ABARE), says for the
financial year 2006-07, coking coal prices will
fall 14% and iron ore prices 18%.
ABARE is
also forecasting falls of varying degrees in the
prices of aluminum, nickel, copper and zinc. But
it believes the driver of the boom, the Chinese
economy, will continue to deliver. It forecasts
China will increase steel production by 44 million
to 316 million tons in 2005 and to 348 million in
2006. Accordingly, Australian exports of iron ore
are forecast to increase 29 million to 240 million
tons in 2005 and to 274 million in 2006.
HSBC chief economist John Edwards says
that despite some slowdown in the growth of
Chinese imports, earlier this year, China's demand
for Australian raw materials will remain robust in
2005-06. "I think China's input growth will be
sustained and accordingly, while I think we're
probably near the peak, I don't expect to see
commodity prices dramatically falling over the
next year," he said. Edwards says a revaluation in
the Chinese currency is looking likely but he does
not believe it will make much of a dent in China's
growth. "It will certainly have a temporary impact
on commodity prices, but I think that when the
market takes stock...it will recognize that
revaluation, of a kind which is plausible, that is
up to 15%, probably won't have a big impact on
China's GDP growth," he said.
If China is
driving the demand side of the boom, some in the
industry, like New Hope Mining chairman Robert
Millner, believe the supply shortfall exists
partly because of insufficient exploration by
mining companies. "A lot of mining companies in
the last 20 years have been run like industrial
companies, by paying out dividends," he said.
"Years ago if you bought into a mining company you
never got dividend out of them - all the money
went back into exploration."
But there is
less of a shortage of exploration and development
now as mining companies rush to take advantage of
the boom. And some observers have expressed
concern that the high prices will encourage
unsustainable projects. The chief executive of
global miner Anglo American, Tony Trahar, told a
recent briefing that "industry discipline will be
tested" in the coming year.
But Dr Edwards
says the mining companies have to accept that
supply will increase and prices will fall. "I
think everybody should be getting into
production," he said. "I think it's ridiculous
that executives of large mining companies should
imagine profits at this kind of level will
continue. The whole idea of high prices is to
evoke higher supply."
(Asia
Pulse) |
|
|
|
|
|
|
|
 |
|
|
|
|
|
All material on this
website is copyright and may not be republished in any form without written
permission.
© Copyright 1999 - 2005 Asia Times
Online Ltd.
|
|
Head
Office: Rm 202, Hau Fook Mansion, No. 8 Hau Fook St., Kowloon, Hong
Kong
Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
|
|
|
|
