Mining & Resources

Mining supercycle ‘still going strong’

11 Dec 2013, by test test

mining super-cycle not over
Image source: www.thebull.com.au

Australia’s mining boom is not over, new research has revealed, although the market will undergo changes in the near future.

The Economist Intelligence Unit (EIU) described the country’s resources performance over recent years as a “supercycle”, with incredible demand from China and other emerging markets driving iron ore, base metals and coal.

However, a report by the organisation said there have been concerns the boom is over and previously viable projects are being mothballed due to declining commodity prices after the 2011 peak.

While academic sources have claimed prices will continue to rise long term, some investors and analysts have been more pessimistic, the In the Pits? report said.

“The Economist Intelligence Unit believes continued growth in China (slower, but from a larger base), ongoing global urbanisation, and structural factors such as higher energy and extraction costs will continue to support prices in the medium term,” it read.

Counter-cyclical capital investment could help businesses to prepare for the next mining upswing, the unit argued, following years of underinvestment in the 2000s.

According to the EIU, substantial overinvestment came in the years after, which unbalanced the supply-demand equation.

Mineral_Economics_Project_Evaluation_Masterclass_P13GR20WEBPDF-1“In addition, remaining resources are deeper and more costly to extract and will require more investment to prepare firms for the next upsurge in demand,” it stated.

Last month, BIS Shrapnel reported similar findings and emphasised a shift away from mining investment and towards production.

In fact, the organisation forecast a 41 per cent rise in mining production activity over the next five years.

How companies within the industry cope with change will be an important factor in their performance over the coming years, EIU said, which could encourage more mining training.

“New management teams … face a delicate balance of protecting balance sheets, satisfying shareholders and preparing the ground for future growth,” the unit concluded.

 

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