Australia’s 30 Year Resources Boom is Over After Just Five Years

You saw it here first in a “Titbit” I posted on the 21st of March (here) titled—“Titbit: 30 Year ‘Mining’ Boom Might Only Last 5 Years”. Now we hear that Deloitte Access Economics declares Australia’s mining boom is coming to an end (here).

It was not that long ago that state and federal governments were telling us all (here in Australia) in a very loud voice at every chance they got that Australia was at the start of a 30+ year resources boom. This proclamation was based on the double-digit growth happening in China and forecast to begin happening in India, with Australia poised to enjoy the subsequent demand for our mineral and energy resources that this growth would drive.

From about 2005 to 2010 the price of iron ore climbed to giddying heights and most other resource prices followed it up. But then the impossible happened. Something that was not supposed to happen for another 20 to 25 years. China’s growth started to slow; dramatically. It fell out of double-digits. But even then the ‘experts’ advised it was only a temporary blip and China’s growth would soon go back into double-digits. But it didn’t. It continued to slow.

By mid-2011 China had shut down a third of its cargo ship building industry and its internal appetite for steel had fallen by 30 percent.

By Q1 of 2012 China’s growth was in the low 9s and in Q2 of 2012 it was below 9 as both America and Europe’s demand for steel declined to ten year lows.

The experts now have very different views of China’s growth for 2012 with some forecasting it could fall below 6 percent in 2013. Not quite what was expected for a growth rate that was supposed to remain in double-digits for the better part of a generation.

So the bottom line is that with both resource prices (especially iron ore and aluminium/alumina) and demand for resources falling consistently over the last 12 months Australia’s “boom” curve has well and truly fallen back to what might be referred to as business-as-usual levels.

The big miners, BHPB and Rio Tinto, have massively increased production with both announcing production records for FY12. However due to the significant reduction in the profit margin on iron ore these record production numbers are not expected to result in record profits. In fact for both miners their profits from the previous two years are expected to be better than this year’s profit.

So the question is “What does this mean for Australia?”

I don’t know what the answer is but I have this uneasy feeling we are not going to like it. But then, you never know, something could happen in the next couple of years to push resources back up and the boom might come back (insert *cough* here).

BarryMark