Australia’s prime minister conceded the boom is fading – and got cracking on trade talks with China, giving Australian farmers hope for the same advantages their Kiwi counterparts enjoy
Kevin Rudd called time on Australia’s long-running mining boom.
In a speech to the National Press Club on 11 July, the prime minister called a blunt end to the good times which have largely accounted for Australia’s record run of 22 years of economic growth. “The truth is, in 2013, the China resources boom is over,” he said.
Rudd’s call might seem paradoxical given that it was only in April that the government’s bureau of resources and energy economics put out its much anticipated bi-annual major projects report, which graphically illustrated Australia’s golden decade. In the 10 year period 2003 to 2012, about 390 major projects in the resources and energy sector progressed to the “committed stage”; their combined value was $394bn, of which $268bn worth of projects are still under construction.
Another 287 projects, valued at more than $400 billion, were either at the early “publicly announced stage” or at the “feasibility” mark in the 13 April list. Many of these projects – 76 in total – were new coal mines. Not all of these mines will go ahead – some will bite the dust before raising any.
The reason, as Rudd made clear in yesterday’s speech, is the plummeting price of Australia’s coal and iron-ore exports – which have been the great drivers of our resources boom. Growth has slowed in China. The Chinese are also moving, rapidly now, to contain their carbon emissions by accelerating their uptake of renewable energy sources such as solar power.
The price for thermal coal has fallen from a peak of around $US190 a tonne in July 2008 to about $US93 in May this year. Lay-offs in the industry were inevitable, and travelers need not go far from Sydney to see and feel the effects of this downturn. As The Global Mail reports in a new multimedia feature about one town’s battle to stop a coal mine expanding at Bulga in New South Wales’ Hunter Valley, businesses in coal-mining area are already feeling the effects of a forecast coal-mining winter.
Paul Burgess, owner of Bulga’s pub, the Cockfighter Creek Tavern, laments that he no longer has a crowd of mine contractors lining up for dinner and drinks on Thursday nights – the traditional end of the mining week – before they commuted back to their homes in Newcastle or Sydney. Others in the village who hold full-time jobs in the mines dotted are fearful that they are about to be laid off.
James Van der Heyden, who drives a monster mining truck at Rio Tinto’s Mount Thorley Warkworth mine, says, “there’s only a certain number of employers out there and times are getting worse and worse. Not just for mining, but for everything. We’ve got no manufacturing left. That’s all sort of shut down. So you’ve got to work for one of the fast-food chains or something.”
The coal industry estimates some 9,000 jobs have been lost in the past year since the slowdown in coal began, including 3,000 jobs in New South Wales – predominantly in the Hunter Valley. Already big coal projects are being shelved.
At the end of June, Aquila Resources delayed construction of its vast Queensland Eagle Downs mine. The month before, Port Waratah Coal Services, which is backed by a consortium of big miners led by Rio Tinto and Xstrata, shelved plans to build a new, highly controversial $5bn coal-export terminal at Newcastle.
But it is not just the economic slowdown in China that has slowed the coal trains. Big investors have realised that the threat of global warming now means that coal consumption the world over will have to drop dramatically.
After the Australian Climate Change Commission warned last month that much of Australia’s large coal and coal-seam-gas reserves would have to be left in the ground if the world was to keep global warming to less than two degrees, the executive chairman of Macquarie Bank in Melbourne, Simon McKeon, said what might have been unthinkable for an Australian banker in recent years:
Anyone who believes they have literally hundreds of millions of tonnes of first-rate, high-emitting CO2 coal can no longer blindly believe there will be a strong market for that in 20, 30 years. Putting my Macquarie hat on, the best of resource investors are absolutely on to this.
No one is suggesting, of course, that Australia’s coal industry will fade away immediately. But the question is, what lies beyond coal for the raft of small communities throughout the Hunter Valley, the Queensland coal towns, and the regional cities that have become coal dependent?
In yesterday’s speech, Rudd aptly described this as a crossover period for Australia. The lower dollar – partially induced by the mining slowdown – provides opportunities, he said, for a new phase of investment in other sectors of the Australian economy.
Rudd might well have been casting an envious eye across the Tasman when he picked up the phone to speak to the Chinese president, Xi Jinping, on the evening of 8 July, and discussed how Australia and China might accelerate their long-running talks on a free-trade agreement.
The Kiwis have had such a trade deal with China since 2008, and it is paying off big time for them. In the first half of this year, New Zealand’s exports to China – mostly dairy, meat and wine – shot up by 33%. Over the same period Australia managed just a 9% jump. Negotiating a similar trade deal will be crucial for Australia’s life after coal, as it will be the vehicle for a push into China by Australia’s next big thing – agricultural exports.
On Wednesday, Kiwi exporters got another jump on their Australian counterparts. New Zealand – very quietly, lest it upset the Chinese – signed a breakthrough trade deal with Taiwan. It will bring immediate tariff cuts of 50% for New Zealand goods entering Taiwan. And the Kiwis will undoubtedly use Taiwan’s proximity to China to generate extra business with China.
New Zealand, of course, has never had a resources boom, so it has had to work a lot harder and smarter to develop markets for its major export – agricultural products. Because New Zealand never became coal dependent, it is now well-positioned to sell big into China and elsewhere. That’s the catching up that Kevin Rudd has his sights set on – after the resources boom.
Australia’s runaway mining boom has, however, left a bad taste – literally – in the mouths of those industries that stand by the best chance of filling the gap left the mining slowdown. Rosemount Estate long ago abandoned its award-winning Edinglassie and and Roxburgh vineyards in the Hunter Valley because of pollution from nearby coal mines. At the time, Philip Shaw, the former chief winemaker for the brands, said: “There was a sort of oniony, garlicky flavour to the crush.”
He blamed the mines.