Main Issues Highlighted by the Article
Australian mining industry is one of the essential sector of the country’s economy that contributes substantial amount of growth to the total output of the economy. According to the latest data, mining industry of the country shared almost 8.5% to the country’s GDP and it is accounted for approximately 2% of the employment of the economy (Ellis 2018). This highlights the importance of the mining industry to the Australian economy. However, over the time there has been various fluctuation in the Australian mining industry that has provided crippling blow to the economic structure of the mining industry. Since the last two decades, Australian mining industry has faced two booms, which took place during 2005 and 2014 that has provided it to become the essential part of the country’s economy with high amount of job creation and enhanced share to the GDP (Campbell and Withers 2017).
Under this scenario it has become important to consider the case of the Australian mining industry and portray how it has performed in recent days. In order to provide clarity to the research, the report will consider a latest newspaper report regarding the Australian mining industry and assess the issues related with the Australian mining industry in present day with special focus to the issues faced by the stakeholders. In addition to this, the report will consider the demand and supply framework in order to portray the economic framework of the mining industry and analysing the same it will provide various recommendations to gauge the present situation of the Australian economy. To conclude the report will provide a summarised overview of its findings and portray.
Australian mining industry has been going through turmoil in recent days due to the fall in the price index of the country’s mining product in the international market due to the fall in the demand. The selected article was published in Sydney Morning Herald with the headline “2018 ‘the end’ of resources boom as commodity price drops bite”, which suggests that the mining boom of the 2014, has been driven by the tech metals (Duke 2018). However, during post mid quarter of 2017, there was drop in the demand of the tech metals that has posed turmoil on the economy of the nation (Dungey et al. 2017).
Figure 1: Australian mining industry growth
Source: (Tradingeconomics.com 2018)
According to the figure 1, it can be seen that there has been various turmoil in the mining industry of the Australia, however apart from GFC situation, according to the trend present fall in the mining industry of the country will be pathetic for the economy (Tradingeconomics.com 2018).
Affected Stakeholders
Figure 2: mining industry capital expenditure
Source: (Duke 2018)
Figure 2 highlights the capital expenditure in the mining industry of the country and it has been fell by 12% compared to the last year (Duke 2018). In this situation, the article suggest to shift to the production of the LNG production, which can provide stimuli to the Australian mining industry.
Mining industry of Australia holds paramount importance to the country’s economy. As it has earlier mentioned it provides almost 8.5% of the country’s GDP and it provides highest amount of employment that makes it one of the essential sectors of the economy (Anderson 2017). With vast amount of employment, which is as high as the 220,000 people mining industry generates highest amount of job in the Australian economy every year (Parker et al. 2017). In addition to this, it has also been observed that the mining industry has helped the economy to withstand against the market shock in several instances. This highlights the importance of the mining industry to the Australian economy. Considering the selected article it has been observed that Australia has been running out of its mining boom that took place during 2014 with the exploration of the tech metals from the mines of the country (Bakker and Shepherd 2017).
As the article posted back in 2016 in the ABC news opined, mining boom of the country has been driven by the tech metals and the latest report highlights it sustained only till 2017 (Adler et al. 2017). Considering the selected article it has been found that major portion of the affected stakeholder of the fall in the mining price index is the employees as well as the owners of the mines. In addition to this, it has also been seen that other than the employees and the owners, fall in the mining price index and loss of production of the mining industry has affected the economy of the nation as a whole. According to the selected article it has been found that the unskilled and the semi-skilled employees of the mining industry has lost huge amount of jobs. As the (Duke 2018) argues, there are more than 50,000 job loss during 2017 due to lack of demand of the Australian mining industry goods and services in the world market.
In addition to this, reduction in the demand of the Australian iron ores has caused fall in the wage rate of the skilled labours. Thus irrespective of the level of expertise, overall labour market of the Australia has been hampered due to the recent fall in the mining output. On the other hand it has been found that the various mining firm has found themselves on the verge of shutting down the business due to the presence of low demand in world market (Yakovleva 2017). Rising demand of the Chinese dominance in the international mineral market has caused the incentive of the Australian mining industry. In addition to this, the selected article highlights that due to fall in the price index of the Australian mining industry through the fall in the demand of the Australian mineral ores in the international market, it has affected the overall economy negatively.
Economic Interpretation of the Selected Article
It has been observed that the mineral exploration trend over the year of the Australia has been falling and most reduction has been observed in the case of the iron due to the presence of Chinese aggression in the international mineral market.
Figure 3: Australian mineral exploration trend over the year
Source: (Abs.gov.au 2017)
Considering the present situation of the Australian economy it can easily be described with the supply and demand framework, which is one of the simplest economic model (Zoutman, Gavrilova and Hopland 2018). As the figure 1, highlights, initial price of the Australian mining products is P1 and the quantity demanded is the Q1. Now as the economy has been facing reduced demand the demand curve has been shifted to D1 position, where the price is P2 and it is lower than the initial equilibrium situation.
Figure 4: Supply and demand framework of the Australian mining industry
Source: (Created by Author)
As the elasticity of the mining products are higher, lower price will enhance the demand of the mining products of the Australia. Considering this, as the economy moves forward and the Australian mining industry moves towards the production of the LNG, demand will rise leading to shift the demand curve to rightward to D2 (Duke 2018). At this new equilibrium situation the price of the Australian mining goods will be P3 which is higher than the equilibrium price.
Selected article highlights that the Australia can play a key role in the world energy sector through supplying the LNG. The article highlights that according the estimation of the International Energy Agency Australia can direct the international energy market and by the end of the 2018, it is expected to earn more than 14 billion dollars, while there will be reduction in the revenue from the coal and iron ore export by 10 billion dollar and 11 billion dollar respectively (Duke 2018).
Figure 5: Australian energy and resource export volume and value
Source: (Duke 2018)
As the figure 5 highlights, Australian energy export volume has been raising at a steady rate over the year. Since 2008, resource export volume has enhanced by almost 300% and the value has also enhanced by substantial amount (Miller et al. 2018). In addition to this the report has highlighted that by the end of the 2023 there will fully operational large scale iron, gas and coal projects, which will be responsible for enhancing the production of the mining industry of the country by one third portion.
Other Relevant Issue Highlighted by the Article
Figure 6: Australian energy and resource export growth
Source: (Duke 2018)
As the figure 6 highlights there is high amount of growth in the Australia’s energy sector that can provide much amount of boost to the economic importance of the energy sector. During the year 2017 it has been observed that energy export has contributed 20% growth to the value of the Australian mining industry and as per the forecast in the coming years it will provide 5% rise in the value of the Australian mining industry output (Solminihac, Gonzalesand Cerda 2017). In addition to this, the article highlights as the export growth of the Australian iron ores are falling it can shift to the base metals like zinc, which is facing high amount of demand in present date in the world market.
Australian mining industry is such an organisation of the economy that possess paramount amount of importance. However, recent fall in the demand of the Australian mineral ores has provided a crippling blow to the overall performance of the economy. Thus, in order to gauge the deteriorating situation of the Australian mining industry some of the recommendations are mentioned below:
- It is paramount importance to the Australian government to reduce the skill gap among the labour force of the country. Share of the skilled labour out of total labour force is still low that has been constraining the economic growth as well as the mining industry growth in the country.
- Next to this, Chinese mining industry has taken aggressive stance to absorb the major share of the international mining market through price cut, superior product and continuous flow. Thus the Australian government need to produce superior quality mineral and provide required exposure to the export sector of the country.
- Export promotion and import substitution can become helpful for the economy to achieve sustainability in the mining industry.
- It has been argued by the selected article that the Australia has high potential to become the market leader of energy exportation. Thus the government need to absorb the same wholeheartedly and provide the industry much needed big push.
- From the supply and demand framework it has been found that there is substantial amount of drop in the demand of the Australian mineral in the domestic as well as the international market. Thus it would be ideal for the Australian mining industry either to focus on continuous focus or it can shift to alternative goods and service sector through utilising the energy sector channel.
Conclusion:
From the above analysis it has been found that Australian mining industry is one of the essential sector of the economy that provide much amount of employment as well as stability to the economy. The analysis has showcased that due to the backing of the mining industry in case of the global recession, Australian economy has sustained itself largely. The economy has faced mining boom in various occasions, however presently it has been found that the economy has been suffering from the lack of demand of its mining goods and service in the international market. As the analysis moves forward, it has been found that one of the major reasons for the fall in the demand of the Australian mining goods and services, is china’s aggressive pricing policy as well as production of superior quality iron ores.
Thus, the report has found that selected article has provides substitute source production for the Australian mining industry and utilising the same it has opined that Australia can become the market leader with the energy export. To complete the analysis, the report has provided recommendations, which within its limited framework aims to provide much amount of push to the Australian mineral industry. Thus to conclude it can be seen that though the mining boom of the country has over due to lack of demand of the tech metals, Australian mining industry can rise again with the help of the enhanced export of the energy sector. It can provide the economy sustainability as well as let it growth with a rapid speed through promoting higher amount of demand.
References:
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