It's Official: The Mining Boom is Bust.
But don't take our word for it…
Here's what one of Australia's most prominent economists, Saul Eslake, had to say at the International Mining and Resources Conference:
"The commodities boom Australia has just experienced in the last 12 or so years is the last of its kind in human history unless unforeseen technological developments ordain otherwise."
That's a grave forecast for anyone who's betting on a recovery in the prices of major commodities like iron ore, coal, and copper.
But let's see if Mr Eslake's forecast checks out…
He believes China, who is credited with leading the recent mining boom, was so big and underdeveloped before the 1980's that it's demand for raw materials will prove to be unparalleled.
Outsiders think of the Chinese economy as an unwieldy manufacturing powerhouse, backed up by the world's largest population.
To put its size and rate of development into perspective, Bill Gates said China used more cement in the three years to 2014 than the USA did in the entire 20th century.
Almost every major infrastructure project in the world uses concrete, from skyscrapers to roads and dams. They also use steel, made from iron ore and coal.
We've all heard the stories of China's 'Ghost Cities' — cities the size of New York, built with the intention of them being filled by citizens moving from the country to the city.
But thanks to overbuilding, it was estimated China had enough vacant apartments to house the equivalent of six years' worth of urban migration. That's more than an entire year of global iron ore production.
Accounting for over two-thirds of global seaborne iron ore production, China's transition away from an infrastructure-led economy won't be an easy one for Australia's mining sector and the broader economy.
And if you are banking on demand from smaller countries like Indonesia, Vietnam, and Pakistan — think again.
"The countries that are still to develop are much smaller than China and India are, they are not, in most cases, starting from as far back on the development curve as China was in 1979 or India was in 1991, and most of them are much more self-sufficient in commodities than China or India ever were," Mr Eslake added.
Therefore, if you're holding shares of major resources companies like BHP Billiton Limited (ASX: BHP), Rio Tinto Limited (ASX: RIO), Fortescue Metals Group Limited (ASX: FMG) and New Hope Corporation Ltd (ASX: NHC) in the hope of a recovery, you may want to reconsider.
