Wednesday, September 19, 2012

Mining. Now we're forecasting the first downturn since the GFC


Official forecasts three months ago

Iron ore income up 7%
Coking coal income down 2%
Liquefied natural gas up 29%

Official forecasts today

Iron ore income down 16%
Coking coal income down 15%>
Liquefied natural gas up 23%

Bureau of Resources and Energy Economics, September quarter 2012-13 forecasts

The government’s official forecaster has taken the axe to its iron ore and coal outlook, predicting the first slide in mining income since the global financial crisis.

The Bureau of Resources and Energy Economics expects iron ore income to slide 16 per cent this financial year and coking coal income 15 per cent. Just three months ago it was expecting iron ore income to climb a further 7 per cent and coking coal income to slip only 2 per cent.

The turnaround comes as Rio Tinto warns it will find it “increasingly hard” to justify further investment in Australia apart from in the Pilbra and as resources minister Martin Ferguson says Australia is at risk of missing out on the next wave of global investment unless it gets costs under control.

The Reserve Bank signalled in board minutes released yesterday that it was prepared to cut interest rates at its next meeting if needed, drawing attention to a 35 per cent slide in iron ore spot prices since June and a 25 per cent slide in coking coal spot prices. It said both slides would be “reflected relatively quickly” in export prices as an increasing amount of our exports are being sold for spot prices or on short term contracts. Iron ore and coking coal are Australia’s first and second biggest exports.

Bureau of Resources and Energy Economics chief Quentin Grafton told a mining conference yesterday commodity prices had peaked and would no longer be driving national income growth.

‘‘That phase is behind us,” he said. “We are in the ‘let’s roll up our sleeves’ phase.’’

Treasurer Wayne Swan will this morning attempt to draw attention away from the resources slide, telling a Canberra conference he “never thought record-high prices would continue forever"...

He will say Australia will be in the “box seat” for Asia’s re-emergence as mining cools, enjoying a “broader suite” of services built on the expansion of Asia’s middle-class.

“There will be greater opportunities in everything from agriculture and food, to travel and tourism, to education, engineering, arts and architecture, to banking and financial services,” he will tell the conference.

“As well as things we haven’t dreamed up yet.”

The Bureau has sliced 10 per cent from its forecast of Australia’s mining and energy earnings, predicting a dip of 2 per cent this financial year instead of the previously forecast increase of 8 per cent.

Shadow treasurer Joe Hockey told his party yesterday the cuts would wipe $20 billion to $25 billion from the Commonwealth budget. He said a number of departments had been asked to change their accounting practices in ways that would be illegal if they were private companies. The government would bring forward its mid-year review. The government says the hit to revenue will be smaller and it is not planning to bring forward the review.

Rio Tinto’s Australian chief David Peever told the conference a double whammy of falling prices and rising costs made new investments in Australia increasingly tough to justify.

Nations that used to be considered too risky or dangerous, such as the Democratic Republic of Congo, Mongoloia and Mozambique, were now real options.

‘‘Let’s be very clear. Australia now has serious competitors across a number of commodities where we previously held the edge,’’ he said.

Resources minister Martin Ferguson said Australia risked missing out on the ‘‘second investment pipeline’’ of potential mining projects worth up to $230 billion unless it could cut its costs or become more productive.

"The job losses announced by Xstrata and BHP in Queensland provide early indication of the potential impacts of this squeeze on margins," he said.

The heavily indebted iron ore miner Fortescue was yesterday granted a $4.5 billion lifeline from lenders JP Morgan and Credit Suisse to allow it to reschedule its debts.

In today's BusinessDay, Sydney Morning Herald and Age

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