Australasian Mining Review

Australasian Mining Review Summer 2011

Australasian Mining Review

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Page 20 of 151

17 [Coal review] high-quality thermal coal is increasingly being shipped to China and India to feed the growing number of new power stations. Quiet simply mining companies – including those producing coal, iron ore in the West, gold and other base metals – are earning above-normal profits and attempting to expand supply to take advantage of higher prices; hence the term “commodity boom.” Long-term expected expenditure (current prices) $b Mining Manufacturing Other Total NSW 3.4 Qld Ratio (%) 12.9 3.9 2.4 2.5 1.0 11.9 17.7 7.6 23.0 0.6 1.3 Economic theory says that in a market economy, capital should move into areas where there is above-average profit – from both domestic and international sources – until supply rises and the “super profits” are shared amongst an increasing number of interests. In time super profits should become normal profits. This shift in economic resources will also include labour. Employment is likely to continue moving from less abundant industries – manufacturing, agriculture, financial and profession services, etc. – into those that can afford above-market wages – which is mining. According to the ABS’s labour cost index general wage inflation appears to be some time away, while wage growth within the mining industry has been above average for the last few years. Labour and capital are scarce so as recovery does take place in other parts of the economy there is a risk of increasing competition for these resources putting further upward pressure on interest rates and bringing forward general wage price inflation. In Australia the official interest rates are about to rise when other countries have near zero rates – due in large part to the commodities boom. It is reasonable to argue that even at this point the mining sector has “crowded out” other industries. The same can be said for the Australian dollar – its appreciation to being almost par with the Australasian Mining Review 2011: issue 2.1 US dollar is negating the upswing for many non- mining exporters. We think official rates could rise 5.5 per cent by mid 2011 due to the commodity boom and the Terms of Trade effect. In the US and most of the major industrialised economies official rates are between naught and one per cent. Australia’s manufacturing contracted over the course of the GFC and has only just started recovering. Rather than continuing its upswing recent figures show that it is again slowing. The Australian Industry Group’s index of manufacturing in September 2010 fell below the 50-point line for the first time this year suggesting it is contracting. In the charts we present investment trends in NSW and Queensland. Prior to the global crisis business investment in Queensland was about to exceed that in NSW. During the GFC, investment in Queensland dipped much more than in NSW. Looking ahead, Queensland investment is about to swing sharply upwards and will exceed that in NSW. This could be by as much as 30 per cent in the next 12 to 18 months. Looking ahead Queensland investment is about to swing sharply upwards and will exceed that in NSW.

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