A little while ago we highlighted (Australian
miners play hard-ball) the efforts of the major mining companies in
Australia to use their economies of scale and efficiencies of automation, in
conjunction with the downturn in the price of Iron Ore, the chief component of
steel production, to drive smaller rivals out of business. In the face of declining
demand they have actually massively ramped up production, which has the effect
of driving prices even lower than they would be given the decline in demand,
especially from China.
Yesterday Iron Ore went below the
significant figure of $US80 per tonne, which makes it 40% lower than at the
beginning of the year. In a detailed analysis, Callam Pickering, writing
in the Australian Business Spectator, delves into the implications for this
for unemployment in Oz, the Australian economy and the fate of the Aussie
dollar. As he says:
“The
RBA’s commodity price index, which has already declined by 15% since the
beginning of the year, should fall by another 4% to 5% in September. The terms
of trade and the Australian dollar won’t be far behind”.
Situation
to get worse before it gets better
As is well known by now, Australia
has seen the writing on the wall in terms of the mining industry. The monetary
and political authorities have decided to move from an export led, commodity fuelled
economy to one that is powered by internal consumption. All of this is in the
light of an on-going softening of the Chinese economy, which country has been
the main consumer of Australian mining production.
The problem is that according to the
most recent GDP report for Australia, mining exports still account for the bulk
of the country’s wealth. This precipitate fall in commodity prices, coupled
with the very significant levels of redundancies from a consolidating mining
industry, can only be bad news for our friends Down Under and, by extension,
for their currency.
No comments:
Post a Comment