Michael Pascoe is well known as one of Australia’s most respected finance and economics commentators. He recently delivered his own overview of the state of mining in Australia and how many people have overlooked the silent juggernaut that is rapidly gaining speed… productivity.
According to Pascoe, Mining Boom number 3 is “quietly rolling on”¯ and many investors could be making another mistake through ignorance as he stated this week,
we`ve been told by the chiefs of the Reserve Bank of Australia, BHP, Rio, the China Mining Association and the Minerals Council of Australia that reports of the death of the resources boom have been greatly exaggerated.
Pascoe deliberated on RBA governor Glenn Stevens fact smacking speech he gave last month at The Anika Foundation Luncheon, where he spoke of the Australian mining industry undertaking three phases (or as Pascoe put it – our three booms).
Perhaps the most important part of the speech honed in on the Third phase – the colossal mining production phase which was greatly overlooked. If you missed it, here’s the shortened version.
The impressive address by Stevens certainly offers an intellectual perspective, rather than the usual fear mongering headlines of doomsday tripe that obviously sells papers.
If you have read the mining news in the past week you would be hard pressed to feel any sort of hope. In fact there is so much negative sentiment surrounding mining and jobs, it is surprising most Australians aren`t screaming “Chicken Little”¯ and running for the hills.
According to Stevens our resources industry has had three phases.
Phase 1: A decade ago prices soared as China’s demand was insatiable.
Phase 2: Mining companies/resource producers ramped up their investment to capitalise on the enormous demand for our quality raw materials, in particular natural gas, iron ore and coal.
This is the phase that saw the most media and public attention as new mines were build and expansion plans exploded. Stevens explains that Phase 2 has now concluded ““ which you would know unless you had been living under a rock. A tapering of the construction spend over the next few quarters is sure to result in falling prices somewhere in the future.
So whilst the public lamented over the now passing “boom years”¯ and the notion an impeding “big fall”¯ was repetitively squawked across the headlines by our pack of media galas, the most important part of Stevens speech was overlooked.
TAKE NOTE of PHASE 3 (below) – which is the phase we sit right now.
The third phase is now under way, in which we will see investment spending fall back, but a lift in volumes shipped of the various commodities. The latter has already started ”“ for iron ore, volumes are rising at about 15 per cent per year ”“ but shipments will probably increase further yet for some time and then stay high. Shipments of natural gas will not start increasing strongly until 2015, and will probably have several years of very strong growth, and then remain high for a few decades………….
Let’s be clear that Australians will continue to benefit from the higher level of resources output for a very long time. There has been a large lift in the global demand for natural resources that our country happens to have in abundance……… the lift in the level of demand we have already seen is permanent enough, and large enough, to have a quite persistent effect on our economy.
And this is the most important point to remember.
“Let’s be clear that Australians will continue to benefit from the higher level or resources output for a very long time…….The lift in the level of demand we have already seen is permanent enough, and large enough, to have a quite persistent effect on our economy.”
In laymens terms – Phase 3 (or Boom 3 according to Pascoe) will keep injecting hundreds upon hundreds of billion dollar investment into the Australian economy whilst construction falls away; which is pretty much the single most important factor to remember.
“hundreds upon hundreds of billion dollar investment into the Australian economy”
BHP and Rio last week reported their more than pleasing results which reaffirmed this view. So today most big mining companies are cutting costs and selling off minor projects, basically making operations and outgoings more efficient; it’s mining production on steroids. This means rather than hemorrhaging money like in the first two phases, basically they have matured and Australia will always be producing the resources that the rest of the world NEEDS.
According to Pascoe, Australians instead will now have to cope with prices being very high rather than extremely high.