Overall mineral production is expected to show only modest growth in 2010-11 as demand continues to recover, according to the latest IBISWorld industry research.
IBISWorld’s Mining in Australia Industry Report shows conditions are expected to improve beyond 2010-2011 as private sector investment firms, leading to stronger demand for a range of mineral commodities.
“In particular, stronger growth in developing countries such as China and India will re-emerge, boosting their demand for Australian mineral exports.
Coal and iron ore producers will once again be amongst the main beneficiaries of China’s rapidly growing demand for mineral resources and will expand production and output levels,” the report said.
According to the report, prices for many metallic minerals plunged in the second half of 2008, continued to fall in 2009 and are expected to remain weak early in the outlook period when the supply/demand balance is likely to continue favouring buyers.
“Increases to capacity made when prices were high came on stream just as demand weakened and the emergence of oversupply and much lower spot prices led to substantial price falls for black coal and iron ore for the contract year commencing April 1, 2009,” the report said.
“Modest price rises are expected in 2010-11, followed by somewhat more substantial gains as demand firms and supply comes under pressure.”
Australian mineral producers benefited from a depreciating dollar in 2008-09 and the currency is expected to remain low in 2009-10, according to the report.
However, the Australian dollar is then expected to appreciate against the US dollar quite strongly as the global economy picks up, equity and commodity prices firm and some risk appetite returns to financial markets.
“Since the prices of mineral commodities are typically denominated in US dollars, the firming Australian dollar will reduce the revenue flowing to miners,” the report said.
“Overall, mining division revenue is expected to expand at an average annual rate of about 4% over the outlook period, with net profit before tax rising more strongly, as firms achieve efficiency gains associated with greater capacity utilisation.”
Industry revenue is expected to expand continuously during the five years ending in 2014-15, but the ongoing firming in the value of the Australian dollar will keep the increases relatively modest, according to IBISWorld.
“Effectively, the firming exchange rate will wipe out part of the gain from increased output and minor price rises,” the report said.
The outlook period is also expected to see continued consolidation.
“BHP Billiton and Rio Tinto will pursue gains from an alliance in the Pilbara, while small miners that commenced operation during the booming years of the current performance period are likely to be takeover targets in a climate of more subdued pricing,” the report said.