2013-14 PRE-BUDGET SUBMISSION

EXECUTIVE SUMMARY

MINERALS INDUSTRY PERFORMANCE

Australia’s minerals industry faced a more constrained environment in 2012 characterised by lower commodity prices, high industry costs and the scaling back of capital expenditure plans. While prices for some commodities have improved in recent months and past investments are beginning to bear fruit as higher export volumes, Australia’s capacity to secure maximum gains from further growth in global minerals demand is reliant increasingly on projects that are planned, but not yet under construction.

The value of minerals exports (excluding oil and gas) increased more than 7 per cent to $163 billion in 2011-12. Reflecting weaker prices, the Bureau of Resources and Energy Economics (BREE) is forecasting exports of $147 billion in 2012-13. Both demand and supply factors suggest Australia has moved past the era of premium export prices. The challenge for the industry, as highlighted in last year’s MCA Pre-Budget Submission, is to transition from an era of price-led growth to volume- led growth in revenues.

BREE puts the total value of ‘committed’ mineral resource projects (mining and infrastructure) at $73 billion at the end of October 2012. Coal and iron ore projects make up almost 90 per cent of this total. Uncommitted projects – those publicly announced or at feasibility stage – stood at $284 billion.

Direct employment in the minerals industry reached 260,000 in May 2012, before declining to 240,000 in November. Even at this lower level, employment in the industry is almost 60 per cent above the level of three years earlier. Wages, workplace training and skills development in the industry continue to be higher than the national average.

Research by the Reserve Bank of Australia has confirmed the extent of positive spill overs from the mining industry to the wider economy. The resources sector as a whole (including resource-related activities) is estimated to account for around 18 per cent of Gross Domestic Product (GDP) in Australia and almost 10 per cent of employment. Claims about the negative impact of mining growth in regional areas have also been debunked in a major demographic study by KPMG. The findings show that mining is stimulating residential population growth crucial to sustainable communities. Far from restricting opportunities, the mining industry is boosting incomes, attracting families and reducing unemployment in nine key mining regions.

The minerals industry continues to be actively engaged in the practical and effective integration of environmental, social and economic aspects of resource development. Among key achievements in 2012 was the development and adoption by government of a preferred model on environmental offsets, formalising recognition of indirect offsets and rehabilitation. Ensuring Indigenous Australians realise opportunities on offer from minerals resource development continues to be a major focus of industry activities.

ECONOMIC AND COMMODITY OUTLOOK

Global growth slowed in 2012, but some improvement in economic conditions late in the year points to a modest reacceleration of activity in 2013. While the growth outlook for a number of large economies remains subdued and the global economy vulnerable to new setbacks, risks appear more balanced at the start of 2013 based on an improved outlook in the United States and China.

The structural shift in global economic weight and engines of growth towards emerging economies continues to hold the key to global minerals demand. China’s growth path over the next 10 to 15 years will be critical, though other nations are expected to contribute increasingly to demand growth. At the same time, new rivals continue to join the global supply contest highlighting the importance of Australia improving its cost competitiveness.

While the domestic economy continues to perform better than most developed nations, heightened uncertainty surrounds sources of growth post the peak in mining investment. There is concern that Australia faces a potential growth ‘pothole’ in 2014 without significant new investment.

Economic commentary has tended to focus on when precisely the current wave of mining investment will peak and what should be the macroeconomic response, given the expected impact on domestic demand. This has overshadowed a bigger question – is Australia’s wider economic policy framework (macroeconomic, structural and across the Federation) equipped to secure the next wave of industry investment? At the moment, it is critically sub-optimal.

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