* RBA says economy still recording reasonable growth
* RBA sees mining investment boom peaking in next year or
two
* Coal deal failure spells more gloom for once hot sector
* India’s demand is important too, Rio says
By Lincoln Feast
SYDNEY, Aug 24 (Reuters) – Australia’s top central banker
said on Friday it was too soon to call an end to the country’s
once-in-a-century mining boom, intensifying debate over the
outlook for the resource-rich economy as miners shelve expansion
plans and takeover deals.
Fuelled by Chinese-led demand for its coal, iron ore and
other resources, Australia’s economy was one of the few in the
developed world to sail through the global financial crisis
without sliding into recession.
But questions over whether the decade-long bull run in
commodities has ended have become louder in recent weeks as data
shows China heading for the slowest pace of annual growth in
more than a decade, driving down the prices of copper, iron ore
and other raw materials.
BHP Billiton , the world’s biggest miner,
this week shelved tens of billions of dollars in expansion plans
due to soaring development costs, a high Australian dollar and
an uncertain outlook, prompting the Australian resources
minister to say the boom was over.
Reserve Bank of Australia Governor Glenn Stevens though said
he saw little evidence to change his view that the mining
investment boom he previously described as a “once-in-a-century”
would continue and probably peak in the next year or two.
“I probably describe myself as cautiously optimistic. I have
tried to get people to see the glass half full rather than half
empty, because I do think we risk talking ourselves into more
gloom than we really should,” he told lawmakers in his
twice-yearly parliamentary testimony in Canberra.
MINED THE GAP
The RBA expects mining investment to peak at about 9 percent
of GDP over the next two years before fading and being at least
partly replaced by a rise in exports as a $270 billion pipeline
of projects starts coming on stream.
“It is way too early to call the “end” of the mining
boom(which even a government minister did yesterday, only to
recant later), although it has become clearer in the middle
distance,” said Stephen Walters, JP Morgan’s chief economist.
“In the meantime, mining investment will remain a key driver of
GDP growth this year and next.”
Reflecting the other side of the argument, the central bank
governor has been criticised for an overly optimistic assessment
of the $1.5 trillion economy.
“I see a huge bust coming, not just an end to the boom,”
said Charles Bradford, an analyst with Bradford Research in New
York. “Especially for iron ore, there is too much capacity
coming on line,” he said.
Iron ore prices have tumbled this year, hitting a near
three-year low below $100 a tonne on Friday , while benchmark
thermal coal prices have slumped 20 percent to
around $92 a tonne.
That bodes ill for Australia’s economy which relied on coal
and iron ore for almost A$130 billion ($136 billion) worth of
exports in the year to May, 38 percent of the country’s total.
So far, however, evidence for a marked slowdown is scant.
Australia’s economy is humming along, with economists estimating
it grew by nearly 4 percent in the second quarter from the same
period last year. Unemployment remains low at just over 5
percent and other measures including housing and retail sales
showing signs of improvement.
A cooling of investment plans in the resource sector, which
accounts for between 10-16 percent of the Australian economy,
may indeed benefit other sectors.
“The delays will help spread the projects into the longer
term, help take pressure off excessive costs, reduce the size of
the commodity supply surge over the decade ahead thereby helping
to support commodity prices and provide breathing space for
other sectors of the economy such as construction, retailing,
manufacturing and tourism,” said Share Oliver, head of
investment strategy at AMP Capital.
In the low-gear of the so-called two-speed economy,
manufacturers have been grappling with a strong Australian
dollar while consumer-facing companies are battling
changing dynamics and lacklustre confidence.
Top supermarket operator Woolworths Ltd warned of
another tough year ahead after posting a fall in second-half
earnings, sending its shares down as much as 3.3 percent.
BID SCRAPPED
Weaker resource prices and growing caution about the outlook
for the sector have also hammered takeover deals, with another
bid collapsing on Friday.
Nathan Tinkler walked away from a $5.5 billion bid to take
Australia’s Whitehaven Coal private, Whitehaven said on
Friday. A source said the electrician-turned-mining magnate was
unable to line up enough funds.
“He possibly bit off more than he was able to chew in the
current environment,” said Wilson HTM analyst Andrew Pedler.
Having once been the darlings of acquisitive companies from
China to India and the United States, Australian mining
companies are now being shunned. They have been involved in
deals worth just $28.6 billion so far this year, compared with
the $79.3 billion in deals done in 2011.
But while deals have dried up and miners including BHP,
Xstrata and Rio Tinto are carefully considering
their investment pipelines as prices slide, few in the industry
are willing to call an end to the China-led boom in demand.
“The reality is we have long-term increasing demand driven
by the people in China and by a lesser degree but ultimately
more importantly by India,” Rio’s copper chief Andrew Harding
told reporters at the company’s Northparkes copper mine in
western New South Wales.
While there were risks, demand for Australia’s resources
would remain strong, Minerals Council chief executive Mitch
Hooke said.
“We won’t see a tapering in demand of any real significance
in the emerging economies probably for the next decade, two
decades.”
