Commodities

    Is Australia’s good fortune about to end?

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    For more than two decades, China’s insatiable demand for Australian commodities has sent iron ore and coal prices ballistic.

    Driven by a massive Chinese investment splurge in construction and infrastructure, Australia has enjoyed massive budget surpluses and essentially avoided both GFC and Covid:19 economic punches.

    But could the end of the economic miracle be in sight?

    Speculation was rife this week after it was reported that the world’s second largest mining company, Rio Tinto along with Glencore, could be in merger talks.

    If an agreement could have been reached, it would have made them collectively the biggest miner by market value in the world.

    Whilst nothing concrete materialised, the talks effectively gave us a crystal ball into Australia’s mining future.

    The last time the two companies met 10 years ago, it was all about iron ore. 

    Understandably so, given the rate of urban development occurring in China at the time, as well as the view that the never ending miracle that is China was, well, never going to end.

    A lot of water has passed under the bridge since then.

    China’s property market has some serious wobbles, and economic stimulus, once the iron ore market’s reliable shot in the arm, has not been forthcoming.

    China, and the market more broadly, is moving towards future facing energy commodities.

    One of those, copper, is an essential ingredient in electrification and it just so happens that at the time demand for the red metal is ramping up, supply is short.

    A lack of new copper mines under development could create a supply squeeze and that has the big miners excited. 

    Miners want to diversify and future proof themselves and copper looks as good as any commodity to do that.

    So where does that leave Australia?

    There can be no doubt that the global race for assets exposed to the energy transition is already on.

    Countries that have watched Australia profit from a commodities boom want their slice of the action.

    Yes we have copper, lithium and rare earths in Australia, but so does Peru, Argentina and Brazil, and right now, they look pretty attractive both in terms of scale and economic competitiveness.

    Mining companies have been calling on the Australian Government to ensure supportive policy is at the forefront.

    But even then, the attraction of the next new mining jurisdiction that offers scale, support and competitiveness might be too good to ignore.

    After a wild ride lasting almost two decades, Australia’s gravy train could be about to run out.

     

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