Coal will rebound from crisis, IBISWorld

New mining projects based on coal seam methane gas in Queensland may help insulate Australia from the effects of the global recession, IBISWorld analyst Raghu Rajakumar said in a recent report.

The report entitled Keeping out of trouble – Opportunities for TEN industries under the pump, discusses the tactics companies can employ to emerge stronger from the current downturn.

According to Rajakumar, the current crisis will hit our largest export industry hard, with demand for minerals likely to be weak for at least the next couple of years as recession in developed economies slashes demand for a range of manufactured goods that are the mainstay of the mineral export segment.

“Staff are currently being retrenched by practically all of the industry’s players, including OZ Minerals, Macarthur Coal, Xstrata and Rio Tinto. Of BHP Billiton’s near 6000 global redundancies, more than half will come from Australia — particularly at the loss-making Ravensthorpe nickel mine,” Rajakumar said.

“A total of around 9000 jobs have vanished from the industry so far since the crisis hit, with further job cuts likely.

“That said however, IBISWorld expects overall industry revenue will enjoy its fifth consecutive year of growth — soaring by more than 50% on the back of much higher prices for coal and iron ore, a weaker Australian dollar and last year’s higher production levels.”

Rajakumar also predicted that overall mineral production would show little or no growth next financial year and only weak growth in 2010-11, when demand begins to rebound.

“When strong demand from China and India re-emerges, coal and iron ore producers will again be the main beneficiaries,” he said.

“Industry revenue and gross profit will still fall at average annual rates of around 5% until 2014.”

Rajakumar said the companies which will succeed through the crisis, will be those who take a long-term view and embrace strategies to lower costs.

“In addition, those which are not already overleveraged may find this the ideal time to resume more aggressive growth strategies and take advantage of acquisition opportunities in an environment offering attractive value equations,” he said.

“Mining organisations may benefit from shifting their focus to supplying the expected growth in global infrastructure projects, such as those earmarked in the US$1.7 trillion fiscal stimulus packages.”

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