NZ economy braces for Oz mining slow down

A new survey of Australian mining bosses points to a slowing of the industry. Photo / Grant Bradley

A slowdown in the Australian mining industry would have a knock-on effect on New Zealand but a leading economist says there are reasons not to be too pessimistic.

A report released today showed the mining industry in Australia appeared to be in survival mode, further fuelling concern the great mining investment boom was over.

Just 25 per cent of Australian companies were planning to invest in major capital expenditure projects in the year ahead, compared to 52 per cent last year.

The mining industry had been slowing since the beginning of the year and this would have an impact on New Zealand trade and immigration, said Shamubeel Eaqub, principal economist at the NZ Institute of Economic Research (NZIER).

"Obviously the mining boom has been very helpful for New Zealand in terms of offering employment opportunities.

"We will see fewer Kiwis going overseas if mining continues to slow."

But Eaqub said most of New Zealand's exports were not directly linked with mining and so he was "not overly pessimistic" about a crash in trade with Australia.

"It will have some impact on our export but we do a lot of our trade with New South Wales and Victoria, which are not mining states.

"Our connection with the mining boom was always indirect."

The Mining Business Outlook report, compiled by Newport Consulting, also found that only 20 per cent of mining leaders were very optimistic, down from 57 per cent last year, and more than a third were not optimistic, compared to just 13 per cent last year.

"Across the board, we've seen a significant shift in sentiment to the negative in the belief that commodity prices will remain high enough to make future investments pay off," the report's author David Hand said.

Four years ago, mining companies were confident that commodity prices would remain high, but are now reassessing their future capital expenditure.

"What we're seeing in the response to our survey is real pessimism about that," he said.

But, miners would not cancel projects that they'd already committed to, he added.

The findings come a week after a Deloitte Access Economics report warned that the mining boom would peak in 2014 and as the thermal coal price fell to US$90 (A$86.87) per tonne and the iron spot price dropped to a fresh low of US$118 (A$113.89) per tonne.

The Mining Business Outlook cited increased costs and tough conditions as the main factors driving mining investment caution, followed by volatile prices and labour shortages.

Mineral deposits which became viable over the past decade due to higher commodity prices could now become uneconomic, Hand said.

While iron ore prices appeared to be stable for now, albeit at a lower level, thermal coal prices were in free fall as some producers considered ceasing production altogether.

"Thermal coal producers are not talking about investment, they're beginning to talk about whether mines will continue to operate," Hand said.

Still, the outlook for iron ore and coking coal remained bright as the rate of industrialisation and steel production continued to motor along in China.

Hand cautioned that the price of thermal coal had fallen significantly since the survey of 55 mining leaders was taken six weeks ago.

Only two per cent of mining leaders said the carbon tax was contributing to caution and more than half of respondents said they had no strategy for dealing with the skills shortage.

- with AAP