Mining boom evolving

Mining boom evolving – not dead

RBA governor says death of mining boom 'overhyped'

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published November 21, 2012 10:57 am AEDT

The death of the mining boom has been greatly exaggerated, says RBA governor, Glenn Stevens.

While the terms of trade have peaked, the mining boom is evolving as expected. Mr Stevens says there are three phases to the boom. The first was the rise in prices, which began in 2004, and peaked more than a year ago. We saw that with iron ore and coal prices, with iron ore hitting a peak of US$190 a tonne, while coal prices peaked at close to US$180 a tonne in 2008, before falling below $100 in 2009, and then recovering to around US$140 a tonne in early 2011. Since 2011 though, coal prices have resumed their downward trend and are currently around US$80 a tonne.

The second phase of the boom is the rise in capital investment, aimed at taking advantage of the expected (and continued) rise in demand for iron ore, coal, natural gas and other commodities. Governor Stevens believes mining investment will peak in 2013 or 2014. In the coal sector, we may have already seen the investment peak, with many coal miners like Yancoal Australia (ASX: YAL) cancelling expansion projects.

The third phase is when the capacity to extract and export higher quantities of resources is actually used. Mr Stevens believes this has begun for iron ore, but is still mostly ahead of us. We've seen evidence of that with Rio Tinto Limited (ASX: RIO) ramping up production to 353 million tonnes by 2015, while Fortescue Metals Group Limited (ASX: FMG) is targeting production of 115 million tonnes per year in 2013. Even BHP Billiton (ASX: BHP) is expanding its iron ore production, by optimising the inner harbour at Port Hedland, to allow for greater export volumes.

Governor Stevens also said that while it was evident that China had not crashed, but it is unlikely that we will see a return to double-digit economic growth. Mr Stevens added that China's economy is three times the size it was 10 years ago and growing at 7% in 2013 adds more to global GDP than China growing at 10% in 2003.

The Foolish bottom line

The main issue is the uncertainty of what will happen to prices as increased supply comes online, not just from Australia but globally, and as China experiences slowing growth.

Oil, copper, and gold continue to be in high-demand — and their popularity doesn't look to be slowing. We've uncovered three companies poised to benefit from the rising prices of these commodities. Get our brand-new report — "3 High-Risk/High-Reward Resources Stocks" — FREE!

More reading

Motley Fool writer/analyst Mike King owns shares in BHP Billiton. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Automatic Renewal

By taking up this offer, you will also be enrolled in our auto-renewal program, which is our way of making your ongoing subscription easier by ensuring uninterrupted service. Don't worry, though – you're not locked in, and can cancel your auto-renewal at any time before each 'anniversary' date without question or penalty.