NAB has a new note out that rather upsets the happy RBA argument that Australia faces a kind and gentle decline in mining investment. According the bank:
The recent capex and exploration expectations data suggest that mining investment may be approaching a turning point. A decline is inevitable: the question is when and how fast.
On the basis of past engineering construction commencements, there are reasons to believe that there is a risk of a decline in 2014 big enough to take 2% points off GDP growth in that year unless another “mega” project starts soon. Lower levels of bulk commodity prices are also likely to be positive for the underlying trend in mining project commencements.
If mining investment retreats spectacularly in 2014, non-mining investment will need to fill the gap quickly if employment growth is to be maintained.
There are only two mega-projects left on the books, Browse and Arrow LNG. Shell has already said it is delaying both. I believe Browse is still a chance to go ahead but not as a terrestrial project. The Browse partners clearly want to use floating LNG, which will actually mean an investment in Korea not Australia (because it supplies the floating behemoth that does the mining). Arrow is less likely again.
So, my base case is that neither of these projects will go ahead in any “mega-project” sense and therefore that the cliff is real. This is one report you should read in full.
2013-03-07_Mining_investment.pdf by Brian Ford
What they are talking (all perfectly reasonable) about will be well and truly apparent by say September this year I would have thought.
Which is why:
a) the government should be painting Abbott as an austerity extremist with every breath
b) rates are going lower
‘a) the government should be painting Abbott as an austerity extremist with every breath’
But the fact is, he is not an austerity extremist at all. Abbott has not advocated austerity and has caveated most statements with a cautious wait and see the books approach.
If the economy tanks, Abbott will do whatever Treasury and the RBA say.
We all know this.
That remains to be seen. Politically he will have no choice but to run tighter fiscal policy than Labor, whatever the circumstances.
I suspect you are correct.
And in light of that I take it you would consider some ‘austerity’ in order?
Given the level of Govt spending we have seent in recent years that shouldnt be too difficult to accomplish I’d say.
I get you, but I dont.
I think we are at the point where absolutely nothing can help the ALParatchiks federally. Maybe a Torynuff meltdown may help limit damage in Victoria, but the ALParatchiks will will remain with an agricultural bouquet everywhere else. TestosterTone is the man who will be leading Australia circa late September. So far it seems to me that the electorate like the Torynuffs and a fairly overt collection of pluguglies simply on the basis they arent the corrupt thugs and economic panglossian imbeciles of the ALParatchiks.
Rates going lower is just pushing on string – yep it will lead to a specuvestor RE frenzy – but it isnt going to touch the AUD until the mining investment melt the NAB is on about is really on the radar, isnt going to bump anything significantly in aggregate demand, and will shove private debt out into the realms where parents send their children to bed on nightmare concerns.
Gunna, I direct all and sundry to Delusional Economics’ excellent primers on the subject – he was onto this long before NAB got out of bed!
Yeah I know, but the simple volume of warning notes about Australian mining investment and the subsequent economics is starting to turn into something more than a trickle.
I didn’t say it would save Labor. But that doesn’t make it the wrong strategy.
The dollar will bleed lower in advance and then tank when it happens.
As for real estate frenzy – no it won’t. There isn’t the credit. Deposit growth is down to 7%. A small uptick in credit demand from here and capacity will be exhausted.
Unless APRA takes it for the team.
‘The dollar will bleed lower in advance and then tank when it happens.’
From here – and I think we saw a glimpse of investors wanting to at least know where the AUD exit door was earlier this week – I find myself wondering if this too may be on us sooner than we think.
‘A small uptick in credit demand from here and capacity will be exhausted.’
exhausted along with hopes of buoying employment through construction as well I would have thought.
HnH
(I think I’m playing devil’s advocate on my own attitudes here!)
Last year your Genworth surveys told the story that if we had any spare investment cash it was going to go in RE. That is exactly what has happened.
When you lower interest rates you create more credit across the whole economy. There is more loose money everywhere and it’s all headed for RE.
Since when have Banks let deposit growth, or lack thereof, stand in the way of more lending?
The only risk it seems is in the external account. Is it such a problem as long as China has USD3T odd of this damned almost worthless paper stuff they are trying to get rid of and we are more than willing to exchange it for real assets for them?
Your paper here last night http://www.macrobusiness.com.au/2013/03/what-is-the-answer-to-bank-liquidity/ combined with the ref to Guy Debelle’s speech, was all about finding ways the Banks can run ever closer to the brink.
(Note, as an aside, the discussions were all about the RBA backing their housing mortgsge paper NOT about ways the RBA can back innovative investment projects!)
Given the political, industrial and bureaucratic climate now prevailing in Australia we are not going to get investment in anything else.
So either extra ‘investment’ (debt) flowing from lower interest rates will go to RE or, as Gunna puts it, the RBA is pushing on a string and lower IR’s result only in more consumption and more sales of things like imported vehicles.
Not too sure what my point is here….I think it was that I agree with Gunna
The dollar will bleed lower in advance and then tank when it happens.
I’m going on a big overseas holiday in late August. You can pretty much guarantee the dollar will crash around then.
Last time I went on a big overseas holiday? Yep, you guessed it. September 2008.
If Browse goes ahead as a marine installation Barnett will blow a fuse.
And I spose the Feds will be cool as the project will be subject to the PRRT??
I am not certain of that but, yes, I would have thought so. If it is the case then it gives you an idea of how mucch cheaper FLNG is…
Kinda leaves a hole in the pit of your stomach as well as in investment!
http://www.dsd.wa.gov.au/documents/Prospect_December_2012.pdf
Prospect Magazine comes out every quarter. Its well worth a read HnH, especially at the back where the major development are listed.
As you can see there is many more significant project other than Browse.
In addition there’s Trains 4&5 of Gorgon, Wheatstone LNG, BHP macedon and Scarborough LNG. You can google these project names for more info.
Granted these are under ‘consideration’. These sorts of projects take about 2 – 5 year of construction and alot of onshore support. Even the FLNG requires a onshore supply area, not exactly a major capex item, but likely to provide jobs.
my 2c
‘Cliff’ is incorrect terminology.
Agreed, I dont expect resource investment to increase from its current extremely high peak, but there is still heaps on the back burner.
A slight decline won’t have a material effect on jobs either, with costs rocketing in WA I’d prefer more sustainable levels of investment instead of the ‘everyone in at once’ mentality.
Thanks for the link….and yes if a majority of those projects under consideration are commenced it will go someway to offset the coming downturn in employment.
However what is nice about the projects listed, both current and proposed is the estimated workforces for construction and operation. for the mining operations it totals a workforce of 29,150 for construction phase and for operations they forecast 16,720 will be needed, a ratio between construction workforce and operations workforce of a little under 2:1. In O&G the disparity between construction and operational workforces is much greater…17,754 to 1,114 or a ratio of more than 17:1…reflecting the largely automated extractive processes in O&G. On the basis of the work force estimates given I contend there must be a substantial fall in employment prospects from here on, as has been recognised by a number of companies working in the sphere of pipeline project planning and approvals (my employment) where there are declining prospects across the board. Given that uncertainties surround the prospects of some of the projects still under consideration and the likelihood that some projects will not proceed as currently configured, or at all (driven by costs of construction, political issues and price of product) then the fall may be even larger than the current forecast fall from a total construction workforce of 54,765 to an operational workforce of 19,659. The majority of the 35,000 jobs that would disappear will have a substantial effect on the economy of Perth with ramifications for the housing market in particular.
As mining/processing investment rolls off, the pace of NBN rollout will be able to increase dramatically.
Lots of workers used to working in areas away from home without jobs will do whatever it takes anywhere in Australia after they have been unemployed/enjoying a break for say 3 months. Many of them will have taken on mortgages and need cash flow.
NAB seems unable or unwilling to speculate on the employment impacts, other than to note that employment will struggle as a result of the run off in investment unless non-mining investment fills the breach.
No information on:
1. the size of the full time equivalent mining investment dependent workforce
2. the number who might be taken on for production and maintenance.
3. the projected rate of attrition per annum
4. the number on 457′s who might lose their visas
5. the numbers from each state
6. the impact on unemployment in each state as FIFO workers lose jobs
7. the ceterus paribus change in the national unemployment rate per annum.
Very few of the displaced people are likely to leave the workforce but they may displace older workers who then stop participating when they return to other construction based jobs in their home states.
Is Treasury doing any work on this?
What about the RBA?
What about private analysts?
Can anyone in Canberra do an FOI on Treasury re the expected employment impacts of the projected retrenchment in extraction/processing investment?