The resource sector is going gangbusters, and while that throws up a challenge for businesses exposed to it, it is at least a known challenge: how to engage with the boom before the miners get their act together and lift supply to a point where prices moderate.
Rio Tinto chief executive Tom Albanese summed it up at Rio’s annual meeting in London on Thursday night when he said miners were paying the price for years of underinvestment before the boom.
They did not do enough exploration, did not train enough people, did not really consider basically that demand might keep surging. It did, and while the boom is mature, it’s continuing under the pull of China’s transformation into an industrialised consumer economy.
Albanese told Rio’s shareholders that the boom that China is leading means the world is probably going to consume as much copper in the next 30 years as it did in the past 10,000 years, and in a New York speech this week Reserve Bank governor Glenn Stevens offered some statistics of his own.
China has lifted its share of global economic output from less than 4 per cent in 1990 to 13 per cent, and between 1990 and 2009 it lifted the employed population by 130 million – to 780 million – close to the total number of employed workers in the US.
China produced about 50 million tonnes of steel in 1990. Now it produces that much every month, nine times more than the US and more than the rest of the world combined. Almost all of it is for domestic consumption in the biggest building and infrastructure expansion in history. Electricity generation has also tripled in a decade, to the point where China generates more power than the European Union.
Huge surge in demand from China
This unprecedented and, for the miners, unplanned-for surge in demand has resulted in serious supply bottlenecks, not just for the commodities themselves, but for the resources miners need if they are to locate, define and extract them.
Financing development is no longer a prime issue, Albanese told the annual meeting. Instead, Rio is finding itself in intense competition for increasingly scarce human and mineral resources, particularly in commodity hot spots like the Pilbara iron ore province in Australia’s north-west.