The signs that the inevitable decline in investment in new mining projects are well and truly underway was shown today when the Australian Bureau of Statistics released its survey of Private New Capital Expenditure and Expected Expenditure for December. The ABS found that the trend estimate for Mining fell 0.6% in the December quarter 2013. Equipment, plant and machinery fell 12.4% while buildings and structures rose 0.8%. The seasonally adjusted estimate for Mining fell 5.5% in the December quarter 2013. Buildings and structures fell 4.2% and equipment, plant and machinery fell 16.0% in seasonally adjusted terms.
The decline in mining investment was a major component in the trend volume estimate for total new capital expenditure in industries overall falling 0.7% in the December quarter 2013 while the seasonally adjusted estimate fell 5.2%.
It was not the reported actual falls that seem to have spooked many economists but the ABS estimates of future capital expenditure. Estimate 1 for 2014-15 at $124,880m is 17.4% lower than Estimate 1 for 2013-14. The main contributor to the decrease was Mining (-25.2%).
Before getting too despondent it is worth remembering that the figure for next financial year is but an estimate. In 2009-10, 2010-11 and 2011-12 the first estimate – made five to six months before the financial year begins – understated what finally happened.
Whatever happens on the total and mining investment front, the mining “boom” in actual volume of production is still a long way from its peak as the graph below taken from the Minerals Council of Australia’s brief for members of the new parliament illustrates:
What that rise in production volume will mean in a dollar contribution to GDP is difficult to judge given the volatility of the Australian dollar exchange rate but there must be a good chance of increased export income softening the blow caused by declining capital investment. On the downside, however, is the effect on employment with actual mining requiring far less labour than the initial construction work.