Reality has finally hit Western Australia, with its Premier, Colin Barnett, declaring the “golden age” of high iron ore prices and rising investment over as China’s economy begins the long process of rebalancing. From The Australian:
COLIN Barnett has declared the golden days of the iron ore boom in Western Australia have ended…
After returning from an official visit to Beijing, the Western Australia Premier said Chinese steel production was levelling off and completion of the current round of mine expansions by BHP Billiton, Rio Tinto and Fortescue Metals Group in the Pilbara would signal the end of the massive increase in iron ore investment.
“I think that will be the last of the strong growth in iron ore production,” he said. “What I’m saying is the golden days of iron ore have passed, or are passing, and the industry will reach a mature level of production, which is nevertheless a massive industry.”
The Premier’s comments come as iron ore miners in WA move to slash costs and back away from committing to further mine expansions in response to weaker iron ore prices and a slowdown in Chinese economic growth.
Meanwhile, the situation facing Australia’s mining workers is looking increasingly grim as companies look to cut costs amid falling commodity prices and mining investment projects come to an end. Also from The Australian:
A DECADE of boom times has created a generation of mineworkers and managers who will struggle to adapt to life in a lower commodity price environment.
Experts and executives say that a new-found intense focus on cost control and a wave of job cuts throughout the mining sector is set to revive many of the practices that were common to the mining industry during the 1990s.
…workers could find it difficult to adjust to life with lower commodity prices and thinner operating margins.
…the boom times of the past decade had become a new normal for those employed in the resources sector and the downturn would be a “shock to the system”.
The changes would be particularly acute among mining contractors who, until the past few years, had historically operated with very small margins.
“There’s a lot of younger people in the industry who haven’t had to manage a business on tight margins”…
“All those practices have slipped because the market has become so fat, and a lot of people don’t have the skill set now to do it. That’s obvious in the industry”.
…the sudden shift in priorities within the mining industry away from growth and towards productivity and cost control would require a shift in thinking from workers in the sector.
“There’s not many people left in town who were part of the 1990s mining story, which was all about productivity,” he said.
Initial signs of a slowdown are also evident in Port and South Hedland, one of Western Australia’s prime iron ore regions, with the once tight housing market facing a severe downturn as mining jobs dry up and incomes fall. From the AFR:
For years the resources boom made Port and South Hedland one of the tightest property markets in Australia.
Now, the cancellation of big projects could leave the remote West Australian city with a property glut and a lot of burned investors.
Hundreds of homes have been placed on the market in neighbouring towns. For the first time in years rental properties are freely available.
The impending fallout is linked to a pullback in major resources-related construction projects that formerly filled the towns’ private housing, delivering landlords yields above 10 per cent…
Even though iron ore exports continue to grow, the end of the construction project boom that requires a large work force means there is less interest in housing and equipment, which now lies idle.
In 2010, Port Hedland residents could expect to pay about $1500 a week for a steel-framed and clad house to secure a property near one of the busiest mineral ports in the world…
A banking source said lenders would require potential buyers to have about 50 per cent equity to buy into the former mining hot spot, rather than the 10 to 20 per cent required in stable markets.
Welcome to the new normal. Even if the economy manages to avoid a technical recession via a ramp-up of export volumes replacing lost mining-related capital expenditures, the economy will still likely get hit hard by a material rise in unemployment, since the export phase of the mining boom is significantly less labour-intensive than the investment phase. Meanwhile, national income is also likely to take a hit as commodity prices fall.
