Australia’s mining sector continues to break more records than Don Bradman. Australia’s mining exports have set a new record for every year of the last seven years.
New figures released this week show that Australia’s resource exports topped $400 billion for the first time last year. Just seven years ago Australia’s resource exports were $150 billion.
The first period of this record run was thanks to massive investment in iron ore, coal and gas projects during the last mining boom after the 2008 financial crisis. Back then over $300 billion was spent over just three years in building bigger mines and an entirely new coal seam gas industry in Queensland.
The last few years of records though have been due to higher commodity prices more recently supercharged because of the Ukraine war. Russia is the world’s largest gas exporter and the fourth largest coal exporter. As Europe has sought to limit its purchases of Russia’s products, they have scoured the world for other supplies pushing up prices.
Coal prices have been more than four times their average levels for months. This financial year Australia’s coal exports are tipped to hit $100 billion for the first time. Coal may even overtake iron ore exports to make coal Australia’s biggest export again.
Prices will eventually come down from these highs but unlike the last price boom there will not be a production boom to follow. That is because despite the high prices, investment in new mines has not increased with higher prices. Just $100 billion in mining capital expenditure has been spent over the past three years, well down on the last mining boom’s records.
We are not increasing production this time because of misguided net zero commitments, increasing red tape on the mining sector and increased taxes like the Queensland Government’s recent royalty changes. The only major investment in recent years has been the Adani mine and that took 10 years to achieve its approvals. The lack of urgency from Australian governments to attract investment will cost us dearly in future years.
A lack of increased supply will also keep prices higher for longer. That might seem a good deal for Australia as a mining exporter but this is just a short term benefit.
Over the longer term, commodity prices that are too high will reduce economic growth and destroy demand for Australian commodities. High commodity prices, especially oil, also increase costs for Australian mines. While in the short term these higher costs can be handled, if a recession causes demand for commodities to fall things can turn ugly quickly.
Early warning signs are already here. As the former CEO of Rio Tinto observed this week, copper is used in so many industries (cars, energy, electronics, etc) so its price is a good indication of the wider economy’s health. As he put it, “When Dr Copper catches a cold, it is not a good sign.” Copper prices have fallen 20 per cent since June.
We are a lucky country to have been blessed with large quantities of natural resources. The exports of these now make up two-thirds of our total exports. But this golden goose will not keep laying eggs without creating an environment that is good for business through low taxes and easy to navigate regulations.
Now is the time for governments to focus on how we can supply more iron ore, coal and gas to help the world maintain economic growth and set new records of jobs and wealth produced for Australia.
