Jan 22 2019
The Australian mining sector may be preparing for a return to the boom conditions seen prior to 2011-12, as investment in mining projects across Western Australia rises.
Rising investment in iron ore, lithium, natural gas, and other commodity projects is contributing to upward pressure on wages for mining employees. However, according to IBISWorld, the mining sector’s outlook remains exposed to the risk of an escalating trade war between China and the United States.
Iron Ore Mining
Over the past two years, a wave of investment in Western Australia across several mining industries has taken place. In the Iron Ore Mining industry, over $6.1 billion dollars was committed to new projects in 2017-18, with a further $5.5 billion allocated to projects in the planning stage.
“New projects under construction from Rio Tinto, Fortescue Metals Group, and BHP have contributed to an expansion in iron ore production. In Western Australia, iron ore sales reached a record 826 million tonnes in 2017-18, an increase of 8.5% over 2016-17,” said IBISWorld Senior Industry Analyst, Jason Aravanis.
Battery Material Mining
In the Battery Material Mining industry, the production of lithium has become a major source of growth for Western Australia. Lithium producers are expected to produce 274 kt of lithium in 2018-19, up from 229 kt in the prior year. According to IBISWorld, lithium exports from Western Australia are expected to generate over $1.1 billion in revenue in 2018-19, up from $0.9 billion in 2017-18.
“Global demand for lithium is on the rise, given its use in manufacturing batteries for the next generation of electric vehicles and consumer devices. Several lithium mines have opened across Western Australia over the past five years, and investment in new production capacity is ongoing,” said Mr Aravanis.
“Furthermore, some lithium miners have announced plans to expand down the supply chain by developing their lithium refining facilities. Although Australian producers currently generate a significant share of revenue through the export of lithium-containing spodumene, this only represents 0.7% of the potential value of the entire lithium supply chain,” Mr Aravanis continued.
Liquefied Natural Gas Production
Investment in the Liquefied Natural Gas Production industry may also be on the rise according to IBISWorld. The much-delayed Browse LNG project, which is spearheaded by Woodside and has been under consideration since 2012, may finally begin development in 2018-19.
“Ten LNG projects have been publicly announced, with an estimated value of up to $38.5 billion. However, major players may be hesitant to commit to these huge investments given the threat of rising LNG production from Qatar and the United States,” said Mr Aravanis.
Gold Ore Mining
Another potential source of growth for Western Australia is the Gold Ore Mining industry. Over 2017-18, several gold discoveries were noted in the Pilbara region, which has traditionally been known for its iron ore deposits, prompting a wave of investment in gold exploration expenditure. Currently, Western Australia is the centre for gold exploration activity in Australia, accounting for 73% of total gold exploration expenditure.
“A substantial gold ore body was discovered in Western Australian in the second half of 2018. Estimates suggest this deposit is the largest deposit known in Australia, and the second-largest in the world. In 2017-18, $1.3 billion of funding was committed to gold projects in Western Australia, and a further $646 million is in the planning stage in 2018-19, so this is one industry that could significantly contribute to the mining boom in Western Australia,” said Mr Aravanis.
Trade tension between China and the United States
Preliminary signs of an improvement in the Western Australian mining industry are positive, with jobs growth on the rise. IBISWorld expects expenditure on mining exploration to pick up in 2018-19, potentially indicating future growth in the mining sector. However, the forecast for the industry may be significantly undermined by the rising trade tensions between the China and the United States.
“China is a major market for Australian mining exports, particularly iron ore and lithium. Should the global economy enter a downturn in response to the significant tariffs introduced in 2018, the Australian economy is likely to be hit hard,” said Mr Aravanis.
IBISWorld Industry Reports used in this release:
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