Mining still strong, despite difficult year

Western Australia continues to lead all other states and territories with mining investment, almost equalling its previous record of $71.3 billion set in 2008-09.

Western Australia continues to lead all other states and territories with mining investment, almost equalling its previous record of $71.3 billion set in 2008-09.

A report by the Department of Mines and Petroleum has found that despite the lower overall average iron ore prices and a stronger Australian dollar, the Western Australia resource industry almost equalled its previous record of $73.1 billion reached in 2008-09.

On average, during the last decade, the resource industry’s sales value has grown 14 per cent per annum.

Western Australia also maintained its position as the largest exporter, contributing $83 billion, a slice of 42 per cent of Australia’s $200 billion exportation in the last 12 months. Queensland was the next biggest exporter, with 21 per cent, followed by New South Wales at 16 per cent and 9 per cent for Victoria.

The forty-year-old benchmark pricing system for iron ore got an overhaul this year, dramatically changing the way the industry functions. Previously, the two major iron ore producers in WA, BHPB and Rio Tinto, together with Brazil’s Vale, set prices annually with buyers for long term contracts, with negotiations starting in September each year.

These prices then took effect for 12 months from April the following year, and historically, the smaller producers would follow the lead of the big two companies and use the same negotiated benchmark price as a guide when marketing their iron ore.

The Global Financial Crisis (GFC) caused delays in contracts and pricing, and agreements  were  not reached with Chinese steel mills, causing about half the cargoes produced in the first part of 2009 to be sold at spot prices .

“The long-term benchmark method has now lost its role as the dominant method for establishing prices of iron ore. It is being replaced by shorter, quarterly semi-negotiated price agreements, with the spot market playing an important role in establishing an index base for prices. This development means that the market will be less transparent at least during a transitory period and as a consequence it will be more difficult to accurately track price movements,” according to the Western Australia Minerals and Petroleum statistics digest report.

Iron ore accounts for nearly half the total sales for WA,  at $33.7 billion, and on average the value of iron ore has increased by 28 per cent over the last decade. Record tonnages were shipped in the last year, increasing by a quarter to reach 396 million tonnes.

Petroleum is Western Australia’s second-largest sector, accounting for 27 per cent with $19 billion in total sales. This is followed by Condensate at 11 per cent and gold with  9 per cent.

BHP Biliton, Rio Tinto Fortescue Metals and other  miners have all announced expansions at their Western Australian mining projects for next year.

 

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