How Long Will Australia's Mining Boom Last?

Introduction:

The mining giant, once glorious and limitless

A clear downward trend in Australia's mining industry

What signals does it send to investors

The mining boom has created a fiscal surplus for the Australian government, but according to the latest economic and fiscal outlook released by the Australian government, it seems that the government is not optimistic about the future of the mining industry.

Where does this pessimism come from?

The mining giant, once glorious and limitless

It is important to know that against the backdrop of consecutive interest rate hikes by the Reserve Bank of Australia, economic fluctuations, and financial market twists and turns, the mining industry has always been an important pillar of the Australian economy.

In 2023, the surge in iron ore prices brought an additional 18 billion Australian dollars in tax revenue to the government. The price of iron ore has been rising for several months, reaching $145 per ton, the highest price since April 2022.The rise in prices is a major boon for the Australian federal government, which relies on iron ore exports as a primary source of tax revenue.

Australian Treasurer Jim Chalmers announced in the 2023 end-of-year economic and fiscal outlook that the budget for this fiscal year has been revised from an initial deficit of over ten billion Australian dollars to a small surplus, mainly due to increased mining revenue. This is attributed to the optimistic expectations for China's economic recovery and the combination of monetary and fiscal stimulus measures.

If iron ore prices remain at $140 per ton, senior budget observer Chris Richardson estimates that the Treasury will have an additional six billion Australian dollars in revenue this year compared to expectations, and an additional twelve billion Australian dollars in revenue for the 2024-2025 period.

The mining boom has not only underpinned the Australian economy but also brought a substantial amount of additional fiscal revenue to the government.

The share prices of Australia's three major iron ore giants have soared over the past decade, and even in the economically challenging year of 2023, their overall performance remains quite good. This indicates that mining companies have achieved significant revenue growth in recent years.

Overall, the Australian government's dependence on the mining industry has become increasingly apparent in recent years, becoming an important factor in supporting the economy.

The downward trend in the Australian mining industry is evident.

In the current situation, European governments are cautious about future global mining and mineral product export revenues, expecting stable export volumes but a possible negative growth in overall revenue. They believe there is a significant downward risk in future mineral product prices, which is basically consistent with the views of the Australian federal government.

Why is that?--- Iron Ore

It is widely acknowledged that the core revenue of Australia's mining exports primarily comes from iron ore, with China consistently being the largest buyer of iron ore. As the Chinese economy has noticeably slowed down, it has only purchased 85% of Australia's iron ore, raising significant doubts about whether the price of iron ore can remain high in the future.

Most analysts and economists maintain a cautious outlook on the profits and growth of future iron ore-related businesses, especially under the premise of stable export volumes, where a price drop would have a substantial impact on revenues across various sectors.

--- Natural Gas and Coal

Apart from iron ore, over the past two years, Australia has also reaped substantial additional income from the export of natural gas and coal. However, the halo of soaring energy prices caused by global energy shortages in the past is gradually fading, making it difficult for natural gas and coal exports to replicate the prosperity of previous years.

Furthermore, as an increasing number of countries adopt renewable new energy sources, the global demand for fossil fuels is expected to decline in the long term.

Additionally, the impact of the localized war in Ukraine on the energy market is also gradually diminishing, which could lead to a continuous decline in the export prices of Australia's natural gas and coal.

--- Lithium Ore

In addition to the aforementioned situations, people may also pay attention to the lithium ore market.With the rise of new energy vehicles, lithium mines were once held in high regard, becoming a global focus in emerging markets. However, it should be noted that lithium prices have plummeted over the past period, with many lithium prices even being halved.

Despite the overall demand for lithium mines still growing, the growth rate has slowed rapidly. Core Lithium, a well-known lithium mine company in Australia, announced that due to the lithium concentrate price falling by more than 85% over the past 12 months, the company decided to suspend mining operations in some open pits.

As is well known, similar to iron ore, the main export country of Australia's lithium ore is also China.

According to statistics, Australia exported 98% of the country's total export volume of spodumene to China in the fiscal year of 23. However, at present, some of China's major lithium battery manufacturers are gradually experiencing the process of destocking, and the growth rate of global new energy vehicle sales is also gradually slowing down.

So in the current situation, the short-term rise in lithium prices has raised many questions. In fact, we believe that lithium prices may be more likely to be flat in the future.

What signal does this send to investors?

It can be seen that, considering various factors, Australia's main export commodities, especially iron ore and lithium mines, due to the downward pressure of China's economy, the future market outlook appears quite uncertain.

Combining the prospects of several major resource exports in Australia, it can be seen that the Australian federal government's conservative expectations for the decline in mining revenue and related fiscal revenue are not unfounded.

Therefore, for investors, if they enter mining assets at a high level, or choose to enter the market at a recent high level, they may face greater risks.

This is not to say that these assets cannot bring returns, but their speed of making money and growth rate may appear to slow down significantly in the future.Therefore, investment decisions should be made with caution and not blindly follow trends.

When making any investment, please consider the applicability of the information contained in this article based on your personal investment objectives, financial situation, or personal needs, make decisions prudently, and bear the risks yourself.