The Real Story On The Australian Mining Downturn

Over the last few years, the Australian mining market has been stuck in a nosedive. The g-forces have been felt by miners and investors alike and the downturn itself is not in dispute. What is up for debate is where it’s headed next. 

According to Bis Oxford Economics, we are just over halfway along a 74% fall in mining construction. While some sort of recovery period is expected by 2020, mining consultancy, Wood Mackenzie, have predicted the 2012-14 investment boom is the last of its kind we’ll see in mining. 

Wood Mackenzie analyst Saul Kavonic indicated the 2012-14 boom may actually be part of our current problem, with many projects going ahead in those years that shouldn’t have. "Australia appears to have received more investment than, in retrospect, it probably deserved."

While Liberal MPs have been pushing for a return to the old days of coal mining, the NAB has made dire predictions, estimating a continuation of the downturn with 50,000 jobs expected to be lost. Their projection has been the darkest, carrying with it a suggestion that mining investment will fall by 70% over the next three years. 

From the December 2016 Capital Expenditure Survey, David Bassanese, chief economist of BetaShares, theorised a decline of 25-30% in 2017 alone. “Applying historic realisation ratios between planned and actual investment, the survey continues to suggest mining investment will decline by 25-30% this financial year,” he said.

Amidst these dark predictions, there are a few beacons of light. The biggest comes from Reserve Bank Governor Philip Lowe, who says the nosedive in mining investment is inches away from pulling up. Why is the Reserve Bank so cheery and hopeful when everyone else is doubtful? 

The answer lies in 2016 research from the Federal Reserve Board which reveals a direct correlation between stock prices and the positivity of news reports. Using advanced text analysis, the board’s research team was able to accurately predict stock market returns by analyising over 900,000 news articles. The researchers noted “positive news affects stock prices within one week. However, negative news predicts low stock returns for up to one quarter.”

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Susan Miller 3 years ago Member's comment

Great read, looking forward to more from you.