Mining Industry

Mining Industry

Australian mining industry has been under reconstruction form the beginning of the new decade. However, at the end of 1990s – beginning of 2000 prices of goods and key resources were low, and the prediction was that prices would continue to fall. The turnaround of the mining industry has been driven by rapid globalization and increased urbanization. In addition, emerging Asian economies have made a transformation in the global commodity market. The revolution of Australian mining industry has been driven by rising demand for commodities. This led to increased demand for energy and steel related commodities and resulted in rethinking of the mining industry by Australian authorities. This in its turn resulted in increased extraction of coal, liquefied gas, coal, and iron. This was driven by the increased urge of developing Asian countries to diversify their economies. Strong institutional frameworks also facilitated the development and growth of the mining industry in Australia.

Prices of commodities escalated in the beginning of the new millennium due to increased emerging economies, especially those in Asia. Particularly, prices of steel making products composed a large portion of Australian exports. In addition, the demand for energy products, such as oil, liquefied gas, and coal, escalated. In response, Australian authorities had to develop new approaches of dealing with the new demand. Commodity prices were low due to historical standards, for example, oil prices per barrel were $10 in 1998. This stagnation of prices did not provide an incentive to producers to increase their production and expand their capacity.

Asian crises affected most of Australian trading partners. This was followed by global recession in 2000. The two recessions slowed down world trade due to subdued demand for commodities. The mining and exploration industries also slowed their pace of growth. However, in the early 2000 global demand rapidly increased due to emerging economies in Asia such as China. The mining industry grew rapidly. For example, steel mining increased due to increased demand for steel products. Some analysts and economists underestimated the potential of economic development of emerging economies such as China. Emerging economies experienced sustainable rapid industrialization and urbanization. There was also a shift from traditional approach of economic development, which viewed agriculture as the major source of income, to industrialization. This has led to increased demand for steel by these emerging economies such as India. The demand for energy commodities increased. For example, China switched from exporting coal to importing it due to increased demand for energy.

Australia has a strong endowment of minerals such as coal, iron, bauxite, copper, and gold. It has been ranked the sixth country worldwide in mineral endowment and its reserves can sustain the country over a long period of time. Extraction of these minerals has increased due to technological advancement, which has led to increased supply of highly demanded products. The rate of globalization increased and the number of mergers and acquisitions has grown as multinational corporations sought to increase their profitability and improve their economies of scale. The growth of mining industry in Australia has led to listing of these companies in the stock exchange. Growth of mining industry in Australia has led to increased exports in 2000. Employment rates in the mining industry also increased tremendously. The revenue growth in the mining industry has increased as well as its contribution to Australian GDP. For example, the contribution of the mining industry to the economy averaged 2% in 1980s, but this number has doubled from 2000 to 4%. This has been due to increased investments in the mining industry.

As it was mentioned, the growth of mining industry in Australia can be attributed to the rapid increased demand for bulk commodities such as iron, coal, and steel from emerging economies such as China and India. However, the production of oil has reduced, while the production of liquefied natural gas has increased. Oil reserves in Australia cannot last for more than 20 years. Therefore, there was a need to shift from oil to liquefied natural gas. Technology advancement has improved extraction technology, which has led to introduction of coal seam gas in Queensland. This has increased liquefied natural gas supply, while other sources of gas in other states have declined. Traditional metal processing industry declined with the growth of mining industry. Moreover, the contribution to the economy declined as well as employment in the industry went down.

Development of mining industry in Australia has impacted the economy in numerous ways such as employment, investment, real, and nominal output of the economy. Economic indicators show that employment rate and real output has declined with development of the mining industry. However, investments and nominal output have increased based on economic indicators observed in 2011. The industry has also had direct impact on the economy such as increased growth of revenues, which has contributed to growth of GDP. Increased revenues have led to higher wages to workers in the mining industry. Growth of revenues has increased government taxes as revenues from the mining industry grew. Majority of mining firms were listed in the stock exchange. The prices of shares increased tremendously as the mining industry grew. Investments in the mining industry have also increased with development of the industry.  The current boom of the mining industry is sustainable compared to past ones. This is due to the fact that it has been supported by developing countries, whose economies have continued to develop.

Evaluation of the Article

“The Mining Industry: From Bust to Boom” is a research discussion paper authored by Ellis Connolly and David Orsmond in December 2011. The article was published by economic analysis department of Reserve Bank of Australia. Ellis Connolly worked as a senior economist in the monetary and financial section of economic analysis department in the Reserve Bank of Australia. He has also worked in the economic research department of the bank, where he did extensive research on household savings. His research work also included evaluation of effects of the financial market on monetary policy transparency. He holds an honorary Bachelor of Economics from University of New South Wales and an honorary degree of Law from University of Technology, Sydney.

David Orsmond is the deputy head of economic analysis at the Reserve Bank of Australia. He also heads bank’s regional and industry analysis. He previously worked at International Monetary Fund as residence representative of Ukraine based in Kiev. He has written numerous economic articles on commodity market, currency arrangements, and global imbalances in growth. Therefore, authors’ credibility to write about Australian mining industry is undisputable, since they have exhaustive knowledge about Australian economic and industrial development.

This article seeks to evaluate the reformation of Australian mining industry in the wake of the new millennium. This was due to the fact that in earlier years economic activities had stagnated and the price for commodity goods were low. This situation created no incentive for growth of industries. The article also evaluates drivers of the mining industry revolution, which has been characterized by development of emerging economies, especially in Asia. In addition, this article has discussed the impact of mining industry revolution on various sectors of the economy. Major drivers of revolution of the mining industry in Australia, according to the article, are emerging economies mostly in Asia (China and India). The increased demand for commodity goods has led to increase of prices for the commodities. This has created an incentive for industries to expand thereby increasing demand for energy and steel. David and Connolly described articulately the impact of emerging economies on mining industry in Australia. In addition, they observed that the strong institutional framework provided platform, upon which the mining industry was developed. Mineral reserves in Australia have been another imperative reason behind the revolution in the mining industry. The country has been ranked sixth globally on mineral endowments with large reserves of bauxite, iron core, gold, and coal.

The article used various mathematical and economic illustrations, such as graphs and tables, to illustrate the trends of economic development and contribution of the mining industry to the economy. The authors have also used these graphs to describe trends of economic development in the emerging economies such as China and India. The graphs were also developed based on real historical data related to the described phenomenon to articulately describe and explain historical trends. Connolly and David evaluated various economic impacts of the mining industry revolution in Australia by describing the impact on various areas of the economy. These included impact on country’s GDP, investments, employment rates, and real and nominal output of the country. The author’s description of energy needs of emerging economies, such as China and India, provides insights on future trends of the economic development and supply of energy and other products.

Information on the revolution of the mining industry as described by David and Connolly can be used by international financiers in evaluating provision of finance to this sector of Australian economy. This information is also essential to the government for formulation of policies on growth and development of the mining industry. By using the information provided in the article the government can predict the contribution of the mining industry to country’s GDP. Increased globalization has led to increased number of mergers and acquisitions as firms seek to increase their profitability. The information provided in the article can be used by multinational corporations to evaluate possible mergers and acquisitions. The article has a list of references to sources used in the article to verify the information and data. The information and data presented in the article are current, and its evaluation of historical information has been justified with data and information. Therefore, the article discussion of Australian mining industry revolution in the early 2000 has presented verifiable information about the industry. Data and information presented in the article can be verified by other sources. The article has adequately covered the topic of revolution of mining industry through explanation of causes and impacts of the revolution.