More signs of slowing growth in resources sector – bad news for Qld budget

Queensland Treasury already made a big downward revision of $1.4 billion over four years in mining royalties in the 2012-13 Mid-Year Fiscal and Economic Review last December, and it may need to shave some more off given the bad news from the resources sector continues.  The Rockhampton Morning Bulletin reports that the Dumping of Balaclava Island port casts doubt over Wandoan:

THE newly-merged Glencore-Xstrata has been forced to again deny it would dump its $7 billion Wandoan coal mine planned for south-west Queensland after killing off its $1 billion port slated for near Gladstone.

The Balaclava Island port was to create 800 jobs during construction with a further 100 needed once it began operating.

Despite cancelling its Balaclava Island port project – a decision understood to have been made before Xstrata’s merger with Glencore – the mining giant has denied it meant anything for the slated coal mine, which is currently the subject of a Land Court battle.

Balaclava Island was to become an export point for the Wandoan’s coal, after it outgrew the capacity it needed from Gladstone’s Wiggins Island coal terminal.

A spokesman for Glencore-Xstrata said the future of Wandoan still relied on the outcome for a Land Court battle over landowner compensation and a final investment decision.

He said that decision would take into account market conditions at the time.

It is those world market conditions that do not currently sit on the side of the Wandoan project, with Glencore-Xstrata’s statement on Balaclava saying as much in its announcement on Monday.

Residential vacancies data from REIQ are also consistent with a slowing resources sector, with the super-heated rental markets in Rockhampton, Gladstone and Mackay cooling somewhat due to lower demand from the resources sector, as also reported by the Morning Bulletin.

Unfortunately there aren’t many signs the construction sector will pick up in the near future and balance any loss of economic activity from the resources sector. MacroBusiness has a useful chart in its post on today’s new ABS housing finance data showing “new home finance in Queensland…has flatlined over the past six months.”

We already know the Commonwealth Budget tomorrow night will be a horror story, and I expect the Queensland Budget next month won’t be much fun either.

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3 Responses to More signs of slowing growth in resources sector – bad news for Qld budget

  1. The Happy Hillbilly says:

    It isn’t looking crash hot for resources is it? I have a relative in management at the GPC, he has heard that the future of Wiggins island coal terminal expansion is looking shakier as well.

    I guess the sun rises and then sets again on all things. It really has been an extrordinarily good run for Australian resources. When the China boom first really began taking off around 2002, Australia was one of only a handful of countries around the world that already posessed a large, highly-developed mining sector that was mostly geared toward export. Given the large costs and the long lead times in developing major resource projects, Australia surely had such a huge first-mover advantage that it was all but impossible for us to go wrong. Demand for labour was scorching, especially given that the projects were all in regional and remote areas, a very long way from major population centres and workers were able to demand outstanding renumeration packages with huge pay packets and all other manner of perks. For example, someone I know earns (or at least gets paid ) $80 000 a year for a mere two days work a week on a mine site, doing nothing that either requires the brilliance of a Stephen Hawking nor entails any greater risk to life and limb than a paper cut. Companies paying to fly entire workforces in and out, paying six figures in Australian dollars to people to drive buses and clean toilets on site – all supportable as long as the tsunami of money kept flooding in.

    At this point, I should probably point out that at the coalface of public service delivery with which I am familiar, most university-educated people earn nothing remotely like this. My boss has a number of high qualifications plus huge responsability compared to that of your average worker over on Curtis island and she still gets paid less.

    In addition to waves of cancellations of planned projects, I can see significant “fat trimming” of mining workforces over the next few years. A sharply falling Aussie might help cushion things for our mining sector – but will it be enough?

  2. Gene Tunny says:

    Interesting info, thanks. There may well be substantial reductions in workforces. Mining employment really shot up rapidly in the last few years and I wouldn’t be surprised if we see a big fall in the next couple of years, though it will still be at a higher level than pre-boom.

  3. The Happy Hillbilly says:

    For myself, I underestimated the effects of this boom on the economy, continually noting that mining is a very small employer (only around 3% of the labour force, and that’s during a boom). However, a huge mining investment boom is something else altogether from the actual act of digging up and shipping out dirt. Here at the very end of the mining production chain (the plants here at Gladstone that process and/or ship out the raw materials), this much becomes obvious when you consider that for every 10 people it takes to build such a plant or shiploading facility, it only takes one person to actually run it once complete (roughly).

    This is where the huge boost in jobs and economic activity has been occurring – in the construction of new mines and mining plant, processing and transporting facilities. The number of people employed to actually dig up the dirt/gas that runs through those facilties and to run the facilities themselves is tiny by comparison. When the construction/expansion jobs dry up, the impact on employment and the loss of income flowing on to the economy might be more serious than many assume. I see Swan hinting at it last night, saying “the transition will not be seamless”.

    .

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