Boom times to return within three years, analyst

BIS Shrapnel has predicted the Australian commodities markets will return to force in three years and warned that investments are needed to avoid the skills and infrastructure constraints that hampered the previous boom.

A report from industry analyst BIS Shrapnel has forecast the Australian mining industry will return to booming conditions within three years.

The Mining in Australia, 2009 to 2024 report, released yesterday, has predicted that after a downturn over the next two financial years annual gross mining investment in Australia will surpass $50 billion by 2011-12 and rise to over $60 billion by 2013-14.

According to the analyst, this surge in investment will be fuelled by multi-billion dollar developments in the iron ore, coal and copper sectors.

BIS Shrapnel forecast the real value of mining production will rise 30% over the five years to 2013-14, compared to an increase of just 2% in 2008-09.

Production is will pick up strongly across most commodities in 2009-10 and accelerate as global demand improves.

According to the senior manager of the analyst’s infrastructure and mining unit, Adrian Hart, the expected decline in mining investment over the next 12 to 18 months will be relatively mild, considering the four-fold increase in mining investment since 2002

“The global recession has dented minerals demand momentarily, but the long term outlook for key commodities is still strong,” he said.

“Over the next five years, strong growth within the Asian region will be a key source of demand for our resources assets and commodity prices will remain well above long term levels.”

The report also noted that the rising production and investment growth would see a return of the same problems that restricted the industry during the previous boom.

These included skills shortages, rail and port transport capacity constraints, equipment shortages, inadequate exploration and a squeeze on necessary maintenance work, the analyst said.

According to Hart, the industry needs to act now in order for Australia to maximise the benefit from the next upswing in the minerals cycle.

“Further private and public investment is required now to boost coal rail and port capacity on the east coast through the next five years,” he said.

“The Queensland Government recently announced it would proceed with the $1.1 billion Goonyella to Abbott Point rail link after it was put on hold earlier in the year.

“Similarly, growth in production and investment will boost the demand for skilled labour.

“Without proper investment in skills there remains the risk that many promising projects, for example in LNG, will be delayed and costs will rise.”

According to Hart, the outlook for the industry varies substantially by commodity and region.

“Energy and steel-driven commodities such as oil, gas, coal and iron ore have the brightest prospects during the next five years,” he said.

“By contrast, the recovery in investment for base metals, such as nickel, silver, lead and zinc, is not expected to arrive until after 2012-13.”

Iron Ore

According to BIS Shrapnel, growth in iron ore production slowed during 2008-09 and investment is expected to dip over the next two years.

However the outlook for activity remains quite strong, the analyst said.

The steel-intensive rapid growth of the Chinese and Indian economies will lead to further investments by iron ore producers.

Investments in infrastructure will remain crucial to unlocking the potential of these assets.

The large rail and port projects planned by BHP Billiton, Rio Tinto and other iron ore entrants are leading the way.

Public funding for a rail line to a new port at Oakajee will help junior iron ore producers establish operations in the mid-west region of Western Australia, the analyst said.

Coal

As with iron ore, coal investment is expected to ease back from a record peak in 2008-09 over the next two years.

Nevertheless it will still remain at historically high levels thanks to Asian demand.

Growth in production is expected to accelerate strongly from 2010-11 following several years affected by capacity constraints, natural disasters and production cutbacks.

However, that investment in new mines and ultimately production growth, will need to be well integrated with port and rail expansions funded by both the public and private sector, BIS Shrapnel said.

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