Australia Mining Investments to Stay High, BIS Says

July 8, 2008

July 8th (Bloomberg) – Oil and gas companies may help sustain record mining and energy investment in Australia, the world’s biggest shipper of coal and iron ore, until 2023 because of demand from China, according to forecaster BIS Shrapnel Pty.

Energy investment is growing strongly because of record prices and increased exploration, the Sydney-based business research and forecasting company said today in an e-mailed statement. The nation’s mining spending rose 22 percent to A$41.5 billion ($40 billion) in the 12 months ended June 30, it said.

Commodities are in their seventh year of gains and the so- called commodities “super cycle” may last another 15 years, according to Merrill Lynch & Co. The global commodities boom has spurred record profits and stock price gains for producers such as BHP Billiton Ltd. and Woodside Petroleum Ltd.

“It looks like a super cycle,” said Ken West, a partner at Melbourne-based Perennial Investment Partners Ltd., where he helps manage the equivalent of $2.8 billion. “ People are making a lot of money. It’s still a good time to be buying resource stocks.”

Woodside’s A$12 billion Pluto liquefied natural gas project is the biggest project by capital spending, the Australian Bureau of Agricultural and Resource Economics said in May. The biggest minerals project is the A$5.2 billion Sino iron ore project owned by Citic Pacific Ltd., the Hong Kong arm of China’s biggest state- owned investing company.

Record Oil

Deutsche Bank AG last month raised its “long term” forecast for crude oil, for the year 2013 and beyond, by 42 percent to $115 a barrel, while the long term natural gas forecast was raised 40 percent. Oil reached a record last week.

“Energy prices may be volatile in the short-term, but we believe that the long-term trend is for energy prices to move higher,” Adrian Hart, senior manager of the forecaster’s infrastructure and mining unit, said in the statement. “This will drive further increases in investment in oil and gas during the next ten to fifteen years.”

An expected trough in commodity prices in 2010 or 2011 won’t hinder record investment, the report said. “Soaring production will offset the impact of commodity price declines,” Hart said. “Strong growth in demand for steel, driven by the industrialization of China, is fueling the boom in iron ore and coking coal investment.”

Nickel, Zinc

Lead, nickel, zinc and copper will have the biggest price falls, the report said. Prices for coal and iron ore will rise until 2009 before beginning to fall between 2010 and 2012, it said.

“With demand continuing to grow at a sharp pace prices are not expected to fall back to the early 2000s lows, encouraging the development of new prospects and sustaining investment at record levels,” the report said.

To be sure, investment could fall should there be a severe downturn in the Chinese economy, the forecaster said. Increasing costs for materials and equipment and a shortage of skilled labor may also hinder investment as could one-off events, such as the explosion at Apache Corp.’s Varanus Island natural gas plant, it said.

The mining boom with help insulate the economy from recession for the next five years, the report said. “Historically high levels of mining investment, coupled with soaring production, is poised to offset the dampening impact of rising costs and interest rates, delivering GDP growth of between 2.5 and 4.5 percent per annum over each of the next five years,” it said.

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