x Abu Dhabi, UAEFriday 28 July 2017

Australian resources investment hits $280bn

Investment committed to Australian resource projects has risen to a record US$280 billion (Dh1.02 trillion), up by almost $8bn in six months.

Investment committed to Australian resource projects has risen to a record US$280 billion (Dh1.02 trillion), up by almost $8bn in six months.

The fly in the ointment, however, is the project pipeline is slowing and development costs are rising in an industry that has so far shielded Australia from global economic downturn.

Committed investment in major resources and energy projects rose to $280.53bn at the end of last month from $272.59bn at the end of April, government figures showed yesterday.

The increase partly reflected higher project costs and masked a fall in the number of committed projects, said Australia's Bureau of Resources and Energy Economics (Bree).

"Even with such a pipeline of investment there is no doubt that we are entering a challenging phase," said Martin Ferguson, Australia's minister for mines.

"In the face of lower commodity prices, the delivery of this pipeline of projects is contingent on keeping production costs down, providing access to skilled labour and increasing our productivity and efficiency."

The number of projects at the committed stage of the investment pipeline has declined by 11 since April. The decline does not reflect project cancellations.

Instead, some projects previously counted as committed have dropped out of the tally because they are now completed and up and running.

"Mega projects, which cost more than A$5bn (Dh19.17bn), continue to be the principal driver of the record level of investment in the resources and energy sectors," said Quentin Grafton, the executive director of the bureau.

The gain also reflects the approval of a second train for the Australia Pacific liquefied natural gas (LNG) project, being developed by ConocoPhillips and Origin Energy in the state of Queensland, Bree said.

The investment value covers 87 projects at the committed stage. LNG, gas and petroleum projects accounted for 73 per cent of the expenditure and iron ore 9.8 per cent, it said.

The project pipeline slowdown comes amid declines in most commodities prices, driven by a drop-off in Chinese demand that has caught many by surprise and forced miners from the world's largest, BHP Billiton, downwards to review their investment plans.

The commodities rout has thrust Australia into a debate over whether the mining boom is over and can no longer be relied on to create jobs, power growth and raise tax revenue in a $1.4 trillion economy that has gone 21 years without a recession.

Miners concede the days of ever-rising prices, which in the past eight years earned them record profits and prompted $70bn of Australian investment, look to be over. Although no final commitment had been made, BHP has shelved its Olympic Dam copper mine expansion, its Outer Harbour iron ore expansion and its Peak Downs coking coal expansion, together worth more than $40bn. Olympic Dam is the world's fourth-largest copper deposit. The copper is sold to customers in Europe, Australia and Asia under contracts that are negotiated annually.

Copper demand in China, the world's biggest user of the metal, is expected to improve next year as the economy recovers, Aurubis, the second-largest refined producer, said yesterday.

"China had a difficult year but when we look forward, we see the economic indicators are turning more positive," said Stefan Boel, a member of the Aurubis board.

Fortescue Metals Group, which had planned to triple iron ore output to 155 million tonnes a year by mid-2013, is delaying nearly half that expansion to save $1.6bn.

"We slowed it so that income was equal to expenditure," Andrew Forrest, the Fortescue chairman, said on Tuesday. "You will still see that the company will reach 155 million tonnes next year, and the formal decision on when next year will be taken by the board of directors next month."

Much of the investment pipeline, A$195bn, is for LNG, gas and petroleum projects - a sum comparable to the total cost of the Apollo Moon programme in today's prices, according to Bree.

* compiled from Bloomberg News and Reuters