Resources industry recovery to gather momentum in 2018: analysts

Fortescue's Herb Elliott Port. Image: Fortescue Metals Group

Mining’s recovery in Australia has been forecast to accelerate into 2018 and beyond.

According to BIS Oxford Economics’ Mining in Australia 2017 to 2032 report, mining exploration, production and maintenance are all expected to lift significantly through 2018.

BIS has forecast the industry to track even higher in subsequent years as strengthening global economic growth supports commodity prices and underwrites new investment and mining operations expenditure.

Mining production only grew 2.5 per cent in 2016/17, according to Australian Bureau of Statistics (ABS) data, but BIS expects growth to accelerate to 5.5 per cent in 2017/18, with even stronger growth over the remainder of the decade.

“The enormous investment boom is now translating into production, particularly within oil and gas, where Australia is expected to become the leading LNG (liquefied natural gas) exporter by 2022,” BIS Oxford Economics Economist Rubhen Jeya said.

“Growth in mining production will be roughly double the pace of the national economy over the next five years.”

According to BIS, the completion of a $200 billion wave of LNG projects over the coming year will see aggregate investment decline further over the next two years.

The forecaster added, however, that this masked the start of a new cycle of investment across a range of commodities including copper, gold, coal and iron ore.

“The completion of the Wheatstone, Ichthys and Prelude projects will subtract a further $20 billion in mining investment over the next two years,” BIS Oxford Economics construction, maintenance and mining associate director Adrian Hart said.

“But excluding oil and gas, mining investment elsewhere is expected to grow at a double-digit pace over 2017/18 and 2018/19 – and will also continue to grow robustly through the subsequent three years.

“Considering that most LNG investment from here represents imports in any case, the time has come to stop blaming the mining investment bust as the reason behind sluggish Australian economic growth.”

The stronger investment outlook does not include Adani’s $16 billion Carmichael coal project in the Galilee Basin, which has not been included in BIS’s base case scenario for the next five years.

Hart said the Carmichael project was unlikely to proceed given long-term steaming coal price projections, relatively high development costs and risks to finance.

“But there are other coal projects which have re-opened or been put back into development because of stronger coal prices compared to the trough in early 2016. The outlook for coal remains positive, although prices may slip back a little in 2018,” Hart said.

“If the Adani coal project did eventuate, there would be significant upside to Queensland’s coal production forecasts, but not until the 2020s.

“In the meantime, such a large investment would likely erode confidence to invest in coal elsewhere, with negative implications for investment and production in the Hunter region, traditionally Australia’s largest thermal coal exporter.”

Higher prices for most commodities over the past year have led to a turnaround in exploration activity, BIS reported. The forecaster estimates exploration activity to rise 8.7 per cent in 2017/18 – and nearly 40 per cent over the next five years.

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