Economic Outlook for Australian Resources:
Prices, Investments and Volumes
Presentation to AMEC
4 September 2012
Professor Quentin Grafton
Executive Director/Chief Economist
Bureau of Resources and Energy Economics (BREE)
bree.gov.au
Overview
1. The ‘Big Picture’
2. Price Trends
3. Investment Trends
- CAPEX
- Exploration
- Major Mining projects
- Investment Futures
4. Volume Trends
bree.gov.au
1. The Big Picture
bree.gov.au
Terms of Trade
Source: BREE; RBA
bree.gov.au
2. Price Trends
bree.gov.au
Commodity Prices (real): Past Trends &
Projections
Source: BREE
bree.gov.au
Index of weekly metals prices (1)
bree.gov.au
Index of weekly metals prices (2)
bree.gov.au
Key Messages
• With some exceptions, most resource prices
have peaked (2011) and expected to decline
relative to these highs.
• Notwithstanding current market uncertainties
(Euro hangover) ‘downs and ups’, price
reductions likely to be substantial in longer
term due to large supply responses from
Australian competitors.
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3. Investment Trends
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Factors Affecting Investment
• Factors common to investment decision across the economy:
• Macroeconomic conditions (interest rates, exchange rate, etc.)
• Government policies
• Factors specific to the mining sector or commodity:
• probability of discovering an economic mineral deposit or
extending the resource base of a known deposit;
• current and expected future prices;
• mining and processing technologies; and
• input costs
bree.gov.au
CAPEX investment activity in Australia
(Real, deflated by CPI)
800
700
Total
Non-mining
Mining
600
500
400
300
200
100
Index
2002-03=100
1966-67
Source: BREE; ABS
1971-72
1976-77
1981-82
1986-87
1991-92
1996-97
2001-02
2006-07
2011-12
bree.gov.au
Australia: Annual capital expenditure of
private enterprises
Period average
2007–08 2008–09 2009–10 2010–11 2011–12
At 2011-12 prices
1991-92 to
2001-2002
2001-02 to
2010-11
$m
$m
$m
$m
$m
$m
$m
372,505
377,044
373,630
378,067
-
204,088
325,578
Mining
48,961
56,556
51,898
64,813
-
15,579
36,755
Manufacturing
27,947
26,030
22,991
21,014
-
18,118
25,118
Gross fixed capital formation
1991-92 to
2001-2002
New capital expenditure
2001-02 to
2011-12
107,239
121,562
112,398
121,477
155,025
62,397
99,913
Mining
32,339
40,782
36,924
47,685
82,081
10,586
30,650
Manufacturing
14,431
13,560
12,322
12,941
13,719
13,278
13,925
Source: BREE; ABS
bree.gov.au
Ratio of mining to non-mining CAPEX
investment in Australia (Real)
Source: BREE; ABS
bree.gov.au
CAPEX as Percentage of GDP
bree.gov.au
Exploration
bree.gov.au
Australia: private exploration expenditure
(Nominal $)
Energy
Petroleum
Onshore
Offshore
Total
Coal
Uranium
Total
Metals and other
minerals
Gold
Iron ore
Base metals,
silver and cobalt
Mineral sands
Diamonds
Other
Total metals and
other minerals
Total
expenditure
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
$m
$m
$m
$m
$m
$m
498
1,727
2,226
193
114
2,533
494
2,541
3,035
235
232
3,501
492
3,318
3,811
297
185
4,293
749
2,746
3,494
321
169
3,984
757
2,559
3,315
520
214
4,049
920
2,277
3,197
834
154
4,185
456
285
593
450
438
589
575
524
652
665
768
1,151
555
783
519
457
670
796
37
27
47
37
22
111
31
10
154
na
na
147
na
na
196
na
na
na
1,407
1,995
1,741
1,742
2,218
2,965
3,940
5,496
6,034
5,727
6,267
7,150
bree.gov.au
Australian private minerals exploration
expenditure (Real $)
bree.gov.au
Major Mining Projects
bree.gov.au
Value of Advanced Mineral and Energy
projects ($2011-2012)
Source: BREE
bree.gov.au
Number of Advanced Mineral & Energy
Projects (1996- Apr 2012)
bree.gov.au
Value of advanced projects by commodity
2002 vs 2012
Source: BREE
bree.gov.au
Advanced Metals Projects
bree.gov.au
Value of advanced projects by state
2002 vs 2012
Source: BREE
bree.gov.au
Value of advanced and less advanced projects
Dec 2002 – April 2012
350
Advanced
Less advanced
300
250
200
150
100
50
A$b
(2011-12)
0
(Dec)
02
2003
(Oct)
2004
(Oct)
2005
(Oct)
2006
(Oct)
2007
(Oct)
2008
(Oct)
2009
(Oct)
2010
(Oct)
2011
(Oct)
bree.gov.au
Key Messages
• Capital expenditures in mining industry totalled about
$82 billion in 2011-12 ─ highest ever, 70% higher than in 2010-11
and about six times greater than annual average over past 30 years.
• Historically high levels of investment (real $) will last for next few
years given the time it will take for some very large projects to reach
completion.
• Over the longer term high levels of investment unlikely to be
maintained if resource commodity prices continue to fall.
bree.gov.au
Investment Futures
bree.gov.au
Prospects: Value of advanced projects if
no new projects were announced
Source: BREE
bree.gov.au
Cumulative real value of completed
projects
120
100
80
60
40
20
cumulative
2011-12$b
Apr-07
Source: BREE
Oct-07
Apr-08
Oct-08
Apr-09
Oct-09
Apr-10
Oct-10
Apr-11
Oct-11
Apr-12
bree.gov.au
4. Volume Trends
bree.gov.au
Commodity Production: Past Trends
300
250
200
150
100
50
Index
2002-03 = 100
2002-03
Iron Ore
Source: BREE
2005-06
Metallurgical Coal
2008-09
LNG
2011-12
Thermal Coal
bree.gov.au
Commodity Production: Past Trends &
Projections
150
Energy
Minerals
120
90
60
30
Index
l
1991-92
Source: BREE
1996-97
2001-02
2006-07
2011-12
2016-17
bree.gov.au
Bulk Commodities
bree.gov.au
Key Messages
• Large volume increases expected with bulk commodities.
• Substantial increases in volume of some metals (gold,
copper, and alumina), but declines or no change in
others.
bree.gov.au
Thank You
quentin.grafton@bree.gov.au
bree.gov.au