Inside Asia: In Australia, Miners Break New Records

SYDNEY — Despite all the doomsayers predicting an end to the Australian mining boom, the country is continuing to pump out metal, coal and natural gas after an investment bonanza, giving a boost to exports and extending the country’s 21-year run of economic growth.

Since the boom began in 2007, mining companies have poured 268 billion Australian dollars, or $282 billion, into new projects. But long construction times mean that actual output has lagged.

That is changing as the major miners in Australia are breaking production records, with double-digit growth expected this year.

The higher export volumes should help plug any hole left in the Australian economy as the huge investments in mining begin to wind down. The sector accounts for 8 percent of Australia’s 1.5 trillion-dollar economy, four times its long-term average.

“The death of the mining boom has been greatly exaggerated, as the pickup in exports illustrates,” said Paul Bloxham, an economist at HSBC in Sydney. “And this is only the beginning of the export story. In the next few years, Australia is set to become a global energy player as LNG comes on stream,” he said, referring to liquefied natural gas.

With the Australian economy growing 3.1 percent in the year that ended in September, the country overtook Spain as the world’s 12th-largest economy. But it will need that boost in mining output and exports to come about quickly if it is to avoid a subsequent dip.

Given the scale of mining investments, even a modest pullback would hurt growth and could put the country at risk of a recession. Australia is the only developed country that largely dodged recession during the global financial crisis.

The need to offset that danger is a major reason investors believe the Reserve Bank of Australia will cut interest rates to a record low this year, after four similar cuts in 2012.

Yet recent production reports from Australia’s’s biggest miners do offer hope that exports are ramping up just in time.

BHP Billiton , Rio Tinto and Fortescue Metals all dug up record amounts of iron ore in the last quarter as well as for the whole of 2012. Chinese demand has proved strong enough for much of this output, even as prices kept rising.

Shipments of iron ore to China from Port Hedland in Australia climbed by a quarter in December from the previous month. Shipments were up more than 21 percent for the year.

Production from Australia’s main iron ore region of Pilbara is now predicted to rise about 17 percent in 2013, and all of that increase is expected to go to the export market.

The mineral that is essential to steel making already accounts for a fifth of the country’s exports, bringing in over 60 billion dollars a year. A decade ago it was worth just 15 billion dollars.

Likewise, coal output is forecast to expand about 10 percent this year, while shipments of oil and liquefied natural gas are starting to increase sharply.

This month, Woodside Petroleum announced a 46 percent jump in fourth-quarter production, in large part attributed to the strong performance of its flagship Pluto LNG project.

Santos, one of the country’s leading energy firms, reported a 13 percent rise in output, lifting revenue in the quarter to a record $876 million.

Australia has high hopes for liquefied natural gas as 190 billion dollars’ worth of projects are under way, with most of the natural gas already sold under long-term contracts. The government’s official forecaster predicts that export volumes of liquefied natural gas will rise 26 percent this year, and will quintuple by 2020, making it as valuable an earner as iron ore is now.

“L.N.G. will be the game changer,” said Brian Redican, a senior economist at Macquarie in Sydney. “It will be a truly extraordinary boon and a great tailwind for the economy.”

Figures like these have given the Australian treasurer, Wayne Swan, the confidence to scoff at reports of the demise of mining.

“We know that the upswing in actual mining production, output and export volumes is still ramping up, and that this will be a driver of Australia’s economic growth in future years,” Mr. Swan told a Harvard Club luncheon in New York this week.

An increase in output is long overdue. While earnings from all of Australia’s exports have risen by an average of 7.4 percent a year since 2006, volumes in the sector grew at less than 3 percent.

By contrast, import volumes have been running at twice that pace, in part because miners have been shopping for everything from remote-controlled trucks to platforms.

That has an impact, as volumes are what count when measuring real, or inflation-adjusted, gross domestic product.

As a result, net export volumes have subtracted from G.D.P. for no less than 20 of the last 27 quarters, even though the value of those exports rose sharply.

That cycle is expected to turn positive in coming years as shipments expand and miners need to import less equipment as projects are finished.

Wayne Cole is a Reuters correspondent.

Article source: http://www.nytimes.com/2013/01/29/business/global/in-australia-miners-break-new-records.html?partner=rss&emc=rss