In the quarterly Investment Monitor, Deloitte Access Economics placed the present state of the Australian mining sector within a wider context of an improving economic outlook – with mining receiving a product price boost off the back of Russia’s invasion of Ukraine.
But although current geopolitical issues have bolstered profits for existing mines and have encouraged investment in replacement capacity, the Deloitte report warned that there is uncertainty around how long prices will remain high.
The report also warned of “long-term risks” for Australia’s more carbon-intensive mining industries, which are expected to weigh on investment in new capacity.
According to Deloitte Access Economics partner and report lead author, Stephen Smith, Australian miners may display caution having recognised that “today’s record prices won’t be followed by a matching increase in investment”.
“Mining exploration expenditure – a key leading indicator of investment – has returned to the levels seen during the gas construction boom in the early 2010s,” Mr Smith said.
“But recent years have seen much smaller amounts invested in new mining projects for a given amount of exploration expenditure.”
This, Mr Smith explained, suggests that business investment in minerals and energy may be more likely to follow the small gain seen in 2008 when China responded to the global financial crisis by stimulating its construction industry, rather than the scenario witnessed in 2011 to 2013 during the Australian gas construction boom.
Energy security is also a major concern, with the war in Ukraine prompting a broader rethink especially among European nations that have legacy energy dependencies on Russia.
But Mr Smith feels that one pathway to bolstering this security is through the use of renewable energy technology.
“This strengthens the business case for new investment in Australia’s critical minerals and metals industry,” Mr Smith said.
In fact, according to Deloitte, elevated commodity prices and the prospect of robust global demand for critical minerals may see an increase in definite investment in Australia’s north and west in the longer term.
The report also detailed the state of Australia’s liquified natural gas (LNG) exports, which grew 4.1 per cent to a record high in 2021 and accounted for more than one fifth of global exports.
It noted that the war in Ukraine “presents an opportunity for Australia to increase export volumes to Japan, especially as the United States and Qatar focus on supplying Europe”.
The outlook for global oil prices, however, appears “volatile”, with the war compounding existing supply concerns.
Australia’s LNG export volumes are expected to remain relatively flat from 2021-22 onwards, while earnings are forecasted to grow 130 per cent in 2021-22 to $70 billion and 17 per cent in 2022-23 to $82 billion.
Looking ahead, Deloitte noted that the recent increase in oil and gas prices is likely to strengthen the business case for projects in the planning stages in Australia.
“The global transition towards less carbon-intensive forms of electricity generation may provide a short-term boost to investment in Australia as countries switch from coal-fired generation, but continues to be a long-term risk for the industry,” the report said.
