Investment in mining is expected to grow, according to the federal government's economic update. Image by Kim Christian/AAP PHOTOS

Mining and Resources

Mining bright spot in economic outlook

2020-07-24 14:15:13

Mining is one of the rare bright spots as the coronavirus hammers the Australian economy.

Mining investment is expected to grow for the first time in seven years by four per cent in 2019/20 and another 9.5 per cent in 2020/21.

The Morrison government’s latest budget update released on Thursday said investment in large iron ore projects will continue.

But it noted global uncertainty and lower commodity prices have led to delays in final investment decisions for new projects.

Mining exports are forecast to increase by three per cent in 2020/21, after a forecast rise of only 0.5 per cent in 2019/20.

Out of Australia’s top 10 trading partners, China is expected to be the only one to see economic growth.

Treasury says the Chinese economy – which returned to strong levels of industrial production in March following the coronavirus outbreak – will lift from lacklustre growth of 1.75 per cent in 2020 to 8.25 per cent in 2021.

“With Chinese GDP expected to grow this year, albeit modestly, Australia’s external outlook remains in a better position than many other economies,” the update said.

Iron ore exports to China are expected to increase.

However, the update assumes Australia’s iron ore price will decline to $US55 a tonne by the end of the December quarter.

Finance Minister Mathias Cormann said on Thursday that despite the iron ore price being around $US100 a tonne in recent times, the government was taking a prudent approach to it.

“It’s well known there can be volatility when it comes to iron ore prices so we continue to make sure we protect the stability of our budget settings in that context,” Senator Cormann told reporters in Canberra.

Lower global coal prices are likely to result in some reduced Australian coal production.

Metallurgical and thermal coal prices have fallen by around one-quarter since the beginning of the year due to lower global demand and the risk of Chinese coal import restrictions, Treasury said.

The Tapis oil benchmark price is assumed to be $US34, around 45 per cent lower compared with December’s mid-year budget update.

The lower oil price is tipped to have a significant impact on the value of LNG exports, as the price of most of Australia’s LNG exports are directly linked to oil prices.

Asked about Australia’s ongoing political tension with China, Senator Cormann said it was important to have a “mutually beneficial relationship”.

“We continue to ensure it is in the best possible shape moving forward,” he said.