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"...public opinion deserves to be respected as well as despised" G.W.F. Hegel, 'Philosophy of Right'

that eternal Chinese boom « Previous | |Next »
September 10, 2012

One major mega economic trend is the world economy shifting from west to east. Australia is potentially well-positioned to take advantage of the new world economy.

Today we have a mining bust in iron ore prices (55%) that few predicted in the mining industry, Treasury or the Gillard Government. Those in the mining industry saw sky high iron ore prices, and they believed these would continue, and they geared up their expansion plans for the ongoing boom.

They held to this belief even though post the global financial crisis Europe was in a depression and the US in a recession; and so the demand for Chinese manufactured export goods would fall, and there would be a decline in the Chinese steel mills demand for Australia's iron ore.

CampbellPAsia.jpg
Pat Campbell

What we were feed by the mining boosters was the eternal Chinese boom story:----ongoing Chinese urbanisation will effectively guarantee strong demand for commodities such as iron ore for the next couple of decades, while Beijing has several economic tools with which to arrest any immediate dramatic slowdown. Things are otherwise to this booster narrative.

In the AFR Elena Douglas points out that:

the terms of trade dividend delivered by the Chinese hunger for our commodities was returned to Australians as family payments A and B; royalties and tax receipts which could have been invested in productivity improving reform of all levels of education.... Real income growth that lasts comes from productivity improvement, and education is one of the biggest productivity levers governments have access to. It’s the education system, stupid, and it always will be.

Education is crucial for the development of high-tech manufacturing in Australia.

| Posted by Gary Sauer-Thompson at 7:42 PM | | Comments (8)
Comments

Comments

the mining bust means less investment and jobs in Australia. I'm waiting for the Coalition to blame the carbon and mining tax.

Where i have been for the last 3 weeks its all csg and there is no talk of bust. There is trouble getting enough machinery and skilled workers.

All that gloom coming from the mining sector is too much to bear. I thought they believed in the law of supply and demand in the deregulated market.

"the mining bust means less investment and jobs in Australia. I'm waiting for the Coalition to blame the carbon and mining tax."

BHP, when announcing the end of the Gregory open-cut mine on Monday, stated:

Gregory open-cut mine production was no longer profitable in the current economic environment of falling prices, high costs and a strong Australian dollar.

That won't stop the Coalition blaming the carbon and mining tax for the decline in prices for coal and for base metals (e.g. iron ore, copper, lead and zinc).

the word from the coalminers--Xstrata Coal--- is that a significant portion of the industry was unprofitable at current prices.

the Australian thermal coal miners have simply refused to believe that demand for their produce could ever fall – hence their determination to dig up virtually the entire Galilee Basin and turn the Great Barrier Reef into a giant coal port and freighter super-highway.

coal companies have effectively been “dudding” their shareholders, by overinvesting in mining projects on the mistaken belief that China would not act to diversify its energy sources and reduce its carbon emissions.

The coal bubble is about to burst

Marvin,
The coal bubble was over-inflated due to high prices and the urgency to build the infrastucture to make it happen. There wont be a burst. Just a slow hissing sound for a while. Workers will move from one area to another.
Its probably a good thing for all to take a breath.