David Stringer Melbourne
AUSTRALIA, an engine room of the decade-long global commodity boom, is forecasting a staggering 90 percent plunge in spending on projects, calling time on its biggest resources bonanza since the 1850s gold rush.
After a collapse in prices from oil to iron ore, the value of Australia’s approved and financed mining and energy projects is forecast to fall to about A$15 billion (R140bn) in 2017, from A$226bn at the end April. Planned iron ore projects worth at least A$10bn have been cancelled since October, according to the Department of Industry and Science. Billionaire Gina Rinehart’s Roy Hill – due to ship later this year – is Australia’s last remaining mining project being developed worth A$5bn or more.
“The value of committed projects is about to start declining substantially,” Mark Cully, the department’s chief economist, said yesterday. “It is clear that this will not be offset by new investments coming through the pipeline.”
Waning demand growth in key markets including China, the biggest commodities consumer, and programmes by mining firms to cut capital expenditure meant there was a lack of projects toward the end of this decade, a department report said.
Australia is the world’s biggest exporter of iron ore and coal and is set to become the biggest shipper of liquefied natural gas by the end of the decade.
It may be at least two years before producers in Australia commit to any new coal developments and longer still before iron ore suppliers contemplate new mine and infrastructure projects, according to UBS Group.
Producers were wary over new investments amid the commodity price rout and uncertainty over demand growth for coal to iron ore, Daniel Morgan, a Sydney-based analyst at UBS said.
A slate of $200bn (R2.4 trillion) worth of liquefied natural gas developments are also nearing completion, including Santos’ Gladstone and BG Group’s Curtis projects.
After a A$334bn spree on mining equipment and infrastructure from 2011 to last year by companies including BHP Billiton, the number of resources projects being developed in Australia was “reverting back to pre-investment boom levels”, Cully said.
Australia’s government forecast in its budget this month that mining investment would fall by 26 percent in the year to June 30, next year, and slump 31 percent more the year after.
Iron ore touched a decade low last month, while crude oil and the London Metals Exchange index of six metals hit four-year lows this half. – Bloomberg