Office of the Chief Economist warns that Australian mining faces short-term challenges caused by China’s slowing economic growth and rising trade protectionism.
Speaking at the International Mining and Resources Conference in Melbourne, Office of the Chief Scientist Manager of Resource Economics David Thurtell said current market conditions were challenging and were expected to remain so in the short term, but there was no need to be overly pessimistic.
Critical and battery commodities, hydrogen and gas were bright spots and Australia was positioned to take advantage of growing demand for battery commodities, he said.
“While commodity demand from China will slow, it will do so from a very large base, and remain a major source of import demand for years to come,’ said Mr THurtell in his address.
“Growth from China is expected to plateau or decline moderately over the medium term, rather than fall sharply.
“Urbanisation and industrialisation in emerging economies will be the next source of growth in commodity consumption. While they are unlikely to replicate the scale of growth in consumption from China, there is a large potential for them to contribute to a large increase in commodity demand.”
According to Mr Thurtell, the key risk is the pace and scale of China’s slowing economic growth, and the extent to which this will be offset by growth in developing countries, which have their own financial risks from growing private debt.
He said that in absolute terms, urbanisation in China would remain significant in the next year or so, but the rate of growth was set to slow noticeably.
Between 2015 and 2020, the urban population was estimated to have grown by almost 20 million a year, and in the five years following, was projected to grow by 16 million per year.
The slowing rate of urbanisation in China underpinned the projected slowdown in commodities demand growth.
But, Mr Thurtell argued, growth in Indian and South East Asian urban populations would drive demand for resource and energy commodities.
“As urban populations grow, materials and energy are needed to develop/expand and power cities,” said Mr Thurtell.
Africa had the potential to play a major role in resource and energy commodity consumption in the long term.
“Rising trade protectionism is a major concern for the world economy and Australia,” Mr Thurtell said.
“Changing government policies in a carbon and pollution constrained world will also affect demand for energy commodities.
“Overall, there are both opportunities and challenges for the mining sector in Australia. The country has vast mineral wealth and sits on the doorstep of a rapidly growing Asia.
“Australian producers have generally adapted well to challenging market conditions in the past. The investment boom has translated into a substantial increase in Australia’s productive capacity, particularly for iron ore and LNG.”
Mr Thurtell said the long-term growth of Australian commodity earnings depended largely on developing Asia and on shifts towards the new commodity uses: LNG, battery commodities and other emerging opportunities.”