Monday, November 19, 2012

The problems facing mining in Australia

Vanguard November 2012 p. 8
by Jim H.
(Above - loading ore at Rio Tinto's Cape Lambert port in the Pilbara region of Western Australia)

The downgrading of Australia’s economic prospects in October by the International Monetary Fund (IMF) was in large part conditioned by a fall in mining ore export earnings.

The main problem is that the world market for the proceeds of mining has fallen. There are some good reasons for this.

In the first place, the global economy has declined, mainly due to the poor performance of the United States and Europe, and this has meant that demand has fallen behind supply. The quantity dug out of the ground in Australia has been continuously rising, at a time when there has also been growth in other parts of the world, mainly South America and Africa. Unless there is an improvement in the performance of the United States and Europe, there will be little prospect for the recovery of Australia’s mining industry.

China has been the workshop of the world in recent times and is heavily dependent on the export of manufactured commodities. Decline in the global economy has resulted in contraction of this market. The shift towards greater reliance on domestic consumption has been slower than the pace of change in the global economy, and this has caused some decline in China’s economic growth. This should not be exaggerated however. This year’s GDP growth has declined to a still very respectable 7.4% and between 7-8% is expected over the next decade. A fall in Chinese demand has had a second level impact on prices.

Recall that the amount of ore Australia exports has not gone down. It is the price that can be charged for this ore that has gone down.

The third factor is the high exchange rate for the Australian dollar. It means that for other countries, it is has become more expensive to buy from Australia. There is incentive to buy from countries that have a lower value currency. This could become an even bigger threat in the future. For instance, China has diversified its sources and will diversify even more so in the future. There is no real dependency on Australia from their side.

Increasing exposure to global crisis

If the situation should worsen, the buffer that has so far shielded Australia from the worst of the global economic crisis may be starting to wither.

Already, 23% of mining companies recently surveyed by the Commonwealth Bank are planning to lay off some workers. A significant number of new mining projects or expansions in the pipeline have been shelved or abandoned, on the basis that the mines have been assessed to not be profitable enough. Other plans for future capital investment have been stopped for now. Mining companies have become more risk adverse in the present circumstances.

A rationally planned and socialised industry

On the other hand, a curtailment of mining could reduce one of the pressures faced by many other industries, in that an over-inflated mining industry has leached an excess of investment capital towards itself. At least this could be the case, if Australia could be isolated from the general capitalist economic crisis.

This could only be achieved with a proper national economic plan that replaces the overwhelming reliance on the market, and especially, replaces total control in the hands of the big mining companies and banks closely associated with them, with reliance on social planning and action to ensure that economic development is properly balanced, sustainable and meets the real need of Australian society.

Instead of this, the big mining companies seek to secure their own position by demanding a substantial increase in productivity. What this means is that each worker should produce more over a given period of time. The claim that the problem is a lack of sufficient productivity is a furphy. Mining in Australia is highly capital intensive. The pace of work is dictated by the technology, and Australia is already has a high level of productivity by world standards.

The talk about productivity is really about reducing pay and conditions for workers as a new source of profit to cover up losses from declining prices. Effectively, this means forcing workers to work more unpaid time.

These mining companies are also running a campaign for tax reform that brings them a further windfall. It is being orchestrated through the Mining Council of Australia, which is pressing the politicians to not only do away with the Mining Resources Rent Tax, and Carbon Tax, but also cut back further on company tax and state royalties. These changes will do nothing to improve Australia’s economic performance. On the contrary, they will aggravate it further. More resources will be turned away from other more important needs.

Dependence on foreign investment

A big part of the problem is that Australia is today almost totally dependent on capital imports from high finance investors from the US and Europe in the main. No industry shows this more clearly than mining. The bulk of its profits go to these foreign investors. In today’s conditions, they are more fickle, and investment capital is much less stable and more volatile than before, constantly seeking new avenues for investment.

To maintain this dependency on foreign investment, as the big mining companies and their backers wish, it is necessary to guarantee a sufficient return. But why maintain this dependency? It would be much better to begin on a path towards independence based on reliance on domestic investment and control. Only then would it be possible to have an industry that operates rationally and according to Australian conditions and needs instead of those of others.

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