LAUNCESTON, Australia, Nov 27 (Reuters) – Anybody who still has lingering doubts that the commodity cycle has turned bearish need only delve into two reports released this week on Australia’s resources sector.
The half-yearly report from the Bureau of Resources and Energy Economics (BREE), the government’s forecaster, showed only three projects, worth a total A$597 million ($507 million), reached a positive final investment decision (FID) in the six months to October.
This is not only the lowest number, but the lowest value for more than a decade, and is conclusive proof that investment in projects is waning under the burden of low prices and more muted demand forecasts as growth in top buyer China slows.
The other report released this week came from consultants PwC, with their annual review of mid-tier Australian miners showing companies are now trying to maximise productivity by boosting output while cutting costs.
The problem is so far these efforts aren’t bearing fruit, as prices fall faster than the companies can make improvements. “In fact, the worst may be yet to come, at least for iron ore and coal miners,” PwC said in the Nov. 25 release.
What both reports confirm is that the decline in commodity prices has put the brake on new projects, while also forcing companies to cut costs in a bid to try and survive for longer than competitors.
This has both short- and long-term consequences for the resources sector, not just in Australia, which is the top exporter of iron ore, coal and will be in liquefied natural gas (LNG) once the seven projects being built are completed.
The reports may be focused on Australia, but they will resonate in other resource-rich countries such as Indonesia, South Africa, Brazil and Canada, where companies are all exposed to much the same pressures and dilemmas.
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