From the annual Melbourne Institute economic palava comes a couple of sobering views. First from BHP via the AFR:
Iron ore prices will drop and BHP will become a producer of middle-income commodities such as shale gas and potash, according to a senior executive of the mining giant, who has also urged Australia to reform productivity and reduce labour market costs.
..“The physical iron ore demand of China will go down. That high end of the cost curve will disappear. Still a very good business but not the massive EBIT margins we have today,” he said. “Still a significantly, very significantly less amount of revenue for BHP of exports for Australia.”
…“If growth in China was 10 per cent, steel [demand] was growing at 13 or 14 per cent. Now, with growth of 7 per cent, steel is going to grow at 3.5 per cent.”
Hate to say it, but this is still too bullish for me in the medium term. If BHP is planning on Chinese steel demand growth of 3.5% then they’re going to be rationalising for some time. My view is Chinese steel is effectively at its peak. It will stay there no doubt but growth from here will so slow as to be negligible. Also from the AFR:
Ross Garnaut, a top adviser to Labor, says the government needs to do more to remove obstacles to economic growth if Australia is to enjoy a “soft landing” once the resources boom ends.
“The first challenge is to come down from our hump in incomes [from the boom] and expenditure without precipitating recession and unemployment that will make every long-term goal more difficult to reach. It means facing up to reform of Commonwealth-State fiscal relations, because the education and infrastructure problems will not be overcome unless we do. It means many hard things.”
Too right.
