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BHP set for bumper FY profit; Oh what's this? a good news story for mining
Topic Started: 18 Aug 2014, 12:17 PM (5,237 Views)
Jimbo
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Bardon
20 Aug 2014, 07:35 AM
I think that the reports of the death of the commodity cycle have been greatly exaggerated.
This isn't so much about the value of commodities though. The state budget takes a hit when the IO price drops but the big impact that faces WA is the tailing off of the mining infrastructure investment boom. Even if the IO price went back to $120, we have enough productive capacity already to take advantage.

WA has experienced high immigration rates, with most being drawn here by promises of higher earnings.

Many coming from places like the UK, took advantage of very favourable exchange rates and brought large sums of cash with them.

The large numbers of migrants created a strong demand for housing that wasn't met with supply. This forced up house prices and rents and also created investment buying demand.

With the tailing off of mining investment, there is less incentive for migrants to come here now. This comes at the same time as we are increasing supply, especially in apartments.

Also, record low interest rates and government incentives have encouraged FHB's to move towards new build property and this, along with fewer migrants is forcing up rental vacancy rates.



Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be :?: rising.
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Bardon
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Jimbo
20 Aug 2014, 08:06 AM
This isn't so much about the value of commodities though.

I understand your point and I know all about the construction downturn in both mining and oil and gas nationally and in the West. I have been directly involved in many projects up and down WA including Perth in oil and gas, mining and infrastructure.

All I am saying is that in my opinion this commodity cycle has a long way to go before it peaks.
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Lef-tee
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Bardon
20 Aug 2014, 07:35 AM
I think that the reports of the death of the commodity cycle have been greatly exaggerated. The "once in a 100 years whatever" is also not entirely accurate. We had had many commodity peaks and lows over the last 100 years, which unsurprisingly align with the Kondratiev wave. Also if you follow this guys teachings then we are only half way up this 30 year rising market which started round about 1990. A mid cycle correction maybe, the death of commodities surely not.
I'm not arguing any death of the commoddity cycle Bardon. Merely what has long been historically the case - that booms tend to end in busts.

The "once in a hundred years" certainly does look quite accurate to me when you see the amazing sums pumped into this boom compared to anything I've seen in my 41 years on this earth, even adjusting for inflation. Have a look at a chart of mining investment spending - previous booms for a long way back are mostly gentle hills, this one is Mount Everest by comparison.

It took 10 000 people to build the plants here in Gladstone. They will employ perhaps 10% of that number when complete. That is quite some distance for the tide to go out.
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Bardon
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Lef-tee
20 Aug 2014, 09:18 AM
I Have a look at a chart of mining investment spending - previous booms for a long way back are mostly gentle hills, this one is Mount Everest by comparison.

It took 10 000 people to build the plants here in Gladstone. They will employ perhaps 10% of that number when complete. That is quite some distance for the tide to go out.
Most of the current major mineral and LNG plants are near completion around the country and there isn't much to replace them in that particular sector or location granted. But this is not a construction bust, its just that the work there is finished as planned, if it hadn't finished then it would have been a disaster. All the people and equipment that went there to build those jobs have completed their contract assignments and that is all that has happened.

As for Gladstone LNG, whatever number of staff that are left there in operations phase is that same amount more than would have been there if the plants weren't built. Never mind the thirty year upstream supply infrastructure that will now need to be continuously supplied across the Surat and Bowen Basin and the associated benefits to the rural areas affected.

Construction contractors that build large processing plants only expect to come and build it and leave, they don't expect to build another one around the corner for someone else.
Edited by Bardon, 20 Aug 2014, 10:41 AM.
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Mike
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Bardon
20 Aug 2014, 10:39 AM
Most of the current major mineral and LNG plants are near completion around the country and there isn't much to replace them in that particular sector or location granted. But this is not a construction bust, its just that the work there is finished as planned, if it hadn't finished then it would have been a disaster. All the people and equipment that went there to build those jobs have completed their contract assignments and that is all that has happened.

As for Gladstone LNG, whatever number of staff that are left there in operations phase is that same amount more than would have been there if the plants weren't built. Never mind the thirty year upstream supply infrastructure that will now need to be continuously supplied across the Surat and Bowen Basin and the associated benefits to the rural areas affected.

Construction contractors that build large processing plants only expect to come and build it and leave, they don't expect to build another one around the corner for someone else.
I agree.

A lot of mines, LNG plants and the like operate for 30-50 years if not longer. The jobs and economic benefit this provides dwarfs the short impact of the main/plants construction.

The jobs to operate the mine/plant, maintain it, export or transport the product created is all more jobs and economic activity.

We are not in a boom, we are in a sustained increase in demand. Demand has increased to a new level due to a few billion people to our north wanting lives like we live. This raises demand on a permanent basis to supply this population at a new standard of living. That demand will not vanish but only increase as more and more of these populations move into the cities and the middle class.

So far only part of Chinas population has moved into the cities. The Chinese government has the stated goal to move another 300 million people into new cities by 2020. India is only in the early phases of its expansion. In 1990 both India and China has similar sized economies, China took off with the correct policies while India fell behind. India can certainly catch up to China and has advantages that China did not. Let alone ASEAN another 800 million people.

Australia and the world are looking at a sustained increase in demand for almost everything for decades to come as the largest population in Human history moves from poverty/poor to the middle class, educated and enjoys a quality of life similar to our own.

We will have wild swings along the way, prices of resources will move up and down. However the trend for exports and income generation for this nations is on a long upward trend that will last decades if not longer.

This is why some bears miss the bigger picture, we are not in a boom we are in a sustained increase in demand from massive populations moving to our standard of living. That demand is here to stay unless those populations are destroyed, revert back to poverty. I don't see this happening.
http://mike-globaleconomy.blogspot.com.au/
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Jimbo
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Mike
20 Aug 2014, 10:51 AM
This is why some bears miss the bigger picture, we are not in a boom we are in a sustained increase in demand from massive populations moving to our standard of living. That demand is here to stay unless those populations are destroyed, revert back to poverty. I don't see this happening.
Yes, we will see long term demand for our resources. Nobody denies that. But we have built most of the mines and infrastructure to service that demand. Now we just dig the stuff out and ship it. That doesn't require anything like the amount of people needed in the construction phase.

Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be :?: rising.
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Perthite
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skamy
19 Aug 2014, 06:55 PM
Leftee population is growing, so we need increasing supply, it is happening and that you cannot deny. You are trying to say that slowing growth is equivalent to dropping population levels, it is not. The fact is that land is selling like hotcakes and prices are rising due to falling stocks.

The WA Economy is still growing at 4% just because it is not growing at 7% does not make this a bad news story. It is an enviable growth figure compounding several years of growth.

You guys jump on the rental market story as a drowning man clutches at straws. You fail to understand that it does not necessarily bring bad news. Why?

1. Rents were inflated by both the investment boom and the housing downturn, this was a boon for investors, now it is over big deal.

2. High end rents have fallen more than low end as the living away from home allowances were taken away last year.

3.Rental vacancy rates rise as new home building blossoms.

There is no significant negative overall economic effects from rents dropping back a bit after such phenomenal growth. Don't forget rents rose by 14% last year in Perth.
On the other hand you can't deny that Population growth is rapidly slowing.

That this in turn will lead to less demand for housing construction in the near future.

Jump up and down all you want.

Perhaps someone needs to explain supply and demand to you over again.


Jimbo
20 Aug 2014, 12:16 PM
Yes, we will see long term demand for our resources. Nobody denies that. But we have built most of the mines and infrastructure to service that demand. Now we just dig the stuff out and ship it. That doesn't require anything like the amount of people needed in the construction phase.
Everyone?

If house prices in China do correct you could see a couple of year hole in that scenario.

Not to mention the ever decreasing number of people required to dig it up. Thank automation for that one.

Edited by Perthite, 20 Aug 2014, 01:45 PM.
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Lef-tee
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Bardon
20 Aug 2014, 10:39 AM
Lef-tee
20 Aug 2014, 09:18 AM
I Have a look at a chart of mining investment spending - previous booms for a long way back are mostly gentle hills, this one is Mount Everest by comparison.

It took 10 000 people to build the plants here in Gladstone. They will employ perhaps 10% of that number when complete. That is quite some distance for the tide to go out.
Most of the current major mineral and LNG plants are near completion around the country and there isn't much to replace them in that particular sector or location granted. But this is not a construction bust, its just that the work there is finished as planned, if it hadn't finished then it would have been a disaster. All the people and equipment that went there to build those jobs have completed their contract assignments and that is all that has happened.

As for Gladstone LNG, whatever number of staff that are left there in operations phase is that same amount more than would have been there if the plants weren't built. Never mind the thirty year upstream supply infrastructure that will now need to be continuously supplied across the Surat and Bowen Basin and the associated benefits to the rural areas affected.

Construction contractors that build large processing plants only expect to come and build it and leave, they don't expect to build another one around the corner for someone else.
I think you are downplaying just how big mining investment has become over the decade to now. It was only after 2004 that it became a quite significant portion of GDP for the first time in quite a few generations, vastly overshadowing all of it's previous level of contribution.

Unless safety nets are in place, the fall from the very top of a ladder tends to be more painfull than the fall from one or two rungs up. We have fallen from the bottom rungs of the mining investment ladder before but have never done so from anything like this high - do you agree that this is a fact?

These enormous projects represent a very large, continuous pump feed of $$$ into the economy - one that has been more or less constantly increasing in volume for a decade. Unless somethig changes quite dramatically, over the next few years that torrent will slow to a relative trickle (it will not fall to actual zero of course).

Can you explain why you do not see the loss of such a large flow of spending as a likely problem? What do you forsee replacing it in order to achive a "smooth baton change"? The bulk of mining profits from the actual export of our dirt and gas belong to someone outside this country. Governments will rake back some taxes and royalties from it but they are not of an expansionary mindset and are unlikely greatly increase their social spending in response. Private credit growth is flat and there may be as little as 100 - 150 bp of ammunion left in the interest rate gun.

So what powerful growth drivers do you see taking over? Government deficit spending? - pretty unlikely at this stage. The only significant one I see likely at present is the possibility of the RBA running a ZIRP. That might help for a while but what then?

One day, government deficit spending will be an accepted driver of growth again. But they will resist all the way, consequences be damned.
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Mike
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Jimbo
20 Aug 2014, 12:16 PM
Yes, we will see long term demand for our resources. Nobody denies that. But we have built most of the mines and infrastructure to service that demand. Now we just dig the stuff out and ship it. That doesn't require anything like the amount of people needed in the construction phase.
We or the rest of the world have not built anywhere near the required amounts to bring most of Asia up to our living standards.

Some smart people a lot smarter then you or I have calculated that it would require the resources of 3 planet earths to bring all of China up to our living standard that we enjoy today.

So as Asia gets richer and we are only in the early stages of Asia's rise resources will become more and more scarce. Australia let alone the rest of the world will lack the supply to feed the demand.

So you are trying to tell us, that a mine that operates for 30-50 years has less economic benefit in terms of jobs and economic growth then a construction project over a few years.

Time to go back to school and study economics 101.
Lef-tee
20 Aug 2014, 01:45 PM
I think you are downplaying just how big mining investment has become over the decade to now. It was only after 2004 that it became a quite significant portion of GDP for the first time in quite a few generations, vastly overshadowing all of it's previous level of contribution.

Unless safety nets are in place, the fall from the very top of a ladder tends to be more painfull than the fall from one or two rungs up. We have fallen from the bottom rungs of the mining investment ladder before but have never done so from anything like this high - do you agree that this is a fact?

These enormous projects represent a very large, continuous pump feed of $$$ into the economy - one that has been more or less constantly increasing in volume for a decade. Unless somethig changes quite dramatically, over the next few years that torrent will slow to a relative trickle (it will not fall to actual zero of course).

Can you explain why you do not see the loss of such a large flow of spending as a likely problem? What do you forsee replacing it in order to achive a "smooth baton change"? The bulk of mining profits from the actual export of our dirt and gas belong to someone outside this country. Governments will rake back some taxes and royalties from it but they are not of an expansionary mindset and are unlikely greatly increase their social spending in response. Private credit growth is flat and there may be as little as 100 - 150 bp of ammunion left in the interest rate gun.

So what powerful growth drivers do you see taking over? Government deficit spending? - pretty unlikely at this stage. The only significant one I see likely at present is the possibility of the RBA running a ZIRP. That might help for a while but what then?

One day, government deficit spending will be an accepted driver of growth again. But they will resist all the way, consequences be damned.
The mining industry is large, just ask the RBA or ABS.

Mining including mining construction account for 6% of GDP and 2% of Australia's workforce.

So as mining investment slows it will certainly have an impact.

However we only need a fraction of an increase in the remaining 94% of the economy and 98% of the work force to counter this decline.

It is a challenge but hardly a challenge we cannot meet.

Edited by Mike, 20 Aug 2014, 02:25 PM.
http://mike-globaleconomy.blogspot.com.au/
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Lef-tee
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Mike
20 Aug 2014, 10:51 AM
Bardon
20 Aug 2014, 10:39 AM
Most of the current major mineral and LNG plants are near completion around the country and there isn't much to replace them in that particular sector or location granted. But this is not a construction bust, its just that the work there is finished as planned, if it hadn't finished then it would have been a disaster. All the people and equipment that went there to build those jobs have completed their contract assignments and that is all that has happened.

As for Gladstone LNG, whatever number of staff that are left there in operations phase is that same amount more than would have been there if the plants weren't built. Never mind the thirty year upstream supply infrastructure that will now need to be continuously supplied across the Surat and Bowen Basin and the associated benefits to the rural areas affected.

Construction contractors that build large processing plants only expect to come and build it and leave, they don't expect to build another one around the corner for someone else.
I agree.

A lot of mines, LNG plants and the like operate for 30-50 years if not longer. The jobs and economic benefit this provides dwarfs the short impact of the main/plants construction.

The jobs to operate the mine/plant, maintain it, export or transport the product created is all more jobs and economic activity.

We are not in a boom, we are in a sustained increase in demand. Demand has increased to a new level due to a few billion people to our north wanting lives like we live. This raises demand on a permanent basis to supply this population at a new standard of living. That demand will not vanish but only increase as more and more of these populations move into the cities and the middle class.

So far only part of Chinas population has moved into the cities. The Chinese government has the stated goal to move another 300 million people into new cities by 2020. India is only in the early phases of its expansion. In 1990 both India and China has similar sized economies, China took off with the correct policies while India fell behind. India can certainly catch up to China and has advantages that China did not. Let alone ASEAN another 800 million people.

Australia and the world are looking at a sustained increase in demand for almost everything for decades to come as the largest population in Human history moves from poverty/poor to the middle class, educated and enjoys a quality of life similar to our own.

We will have wild swings along the way, prices of resources will move up and down. However the trend for exports and income generation for this nations is on a long upward trend that will last decades if not longer.

This is why some bears miss the bigger picture, we are not in a boom we are in a sustained increase in demand from massive populations moving to our standard of living. That demand is here to stay unless those populations are destroyed, revert back to poverty. I don't see this happening.
Don't you think it would be nice if more of what you are talking about actually stayed here, to be spent into the local economy instead of being funneled into the pockets of fat cats in foreign places.

Norway's resources are owned by Norway and they are so lucrative that large sums have to be stashed away in a sovereign wealth fund - not because a fully sovereign government actually needs the money but because if everything it made went into the economy, inflation would probably spiral out of control.

But this will never happen here, it's just wishful thinking on my part :)
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So you are trying to tell us, that a mine that operates for 30-50 years has less economic benefit in terms of jobs and economic growth then a construction project over a few years


It would be interesting to sit down and try and work it out Mike.

How many years is it likely to take for our LNG plants here at Gladstone for example, to have generated a net number of jobs in their operational life that exceeds the 10 000 taken to build it? How much of the profits will be re-invested back into the Australian economy against how much will be siphoned away?

My concern is this: Mining has for a very long time been a small contributer to jobs and the general economy. But over the past 10 years this has changed and it has become a significant player, especially when you take into account just how many jobs likely exist because of the flow-on through the economy rather than just those that are counted as directly employed by the sector.

Once mining goes back to making something more like it's normal contribution, what will be the main growth drivers that will take over? The ones we have long run on are either flat with not a huge amount more ammo left to stimulate them (maybe one last good burst) or are politically out of vogue.
Edited by Lef-tee, 20 Aug 2014, 02:08 PM.
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