The outlook from Shanghai

IMAGINE the world as seen from the head office of an industrial conglomerate in Shanghai or Seoul. In the iron ore market, the Pilbara still looks competitive, but the next generation of mines in other parts of Australia is looking expensive compared with mines in West Africa that cost little more than half as much to dig.

The cost of Australian thermal coal is rising and new mines in Colombia and Mongolia are looking more attractive. Aluminium is considerably cheaper to produce in China or in the Middle East, where higher capital costs are offset by cheaper energy. Newly developed nickel pig iron technology can process low grade ore from The Philippines and New Caledonia for a fraction of the Australian cost.

The Mineral Council of Australia’s report on risks to the resources industry released yesterday reminds us of the eternal truth that no one owes this country a living. We have abundant natural resources, we are good at getting them out of the ground and we are a reliable trading and investment partner, but there is no sector in which Australia enjoys a monopoly. The entry of new suppliers in the global resource market should not catch us by surprise since Australian expertise has speeded their development. Softening demand and lower returns do not spell the end of the mining boom, by any stretch of the imagination, but we will have to fight harder for the mining dollar if we are to keep a step ahead.

Success in this new, competitive environment will require a new approach from a government that has been more focused on extracting and redistributing taxes from mining rather than encouraging flexibility, productivity and innovation. We cannot simply blame the high dollar or a temporary slowdown in China; we must recognise that we have a home-grown productivity problem that must be addressed. Project delays in Australia have been increasing over the past decade; for coking coal projects, for example, the average delay in Australia is 3.1 years, compared with 1.8 years in the rest of the world. The high cost of labour, Australia’s perennial disadvantage, can be mitigated by fast-tracking development procedures, removing green and red tape, encouraging job participation, skilled immigration and flexible workplace rules. Australia’s mineral resources remain attractive, but we must work hard to keep our competitive edge.