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Australia Mine, Energy Investments Peak as Projects Delayed

Mining and energy projects worth about A$150 billion ($147 billion) have been delayed or canceled in the past year in Australia as investments peaked and commodity prices declined.

There were 14 fewer projects being developed in Australia as of April 30, the Bureau of Resources and Energy Economics said today in a report. Projects worth A$267.6 billion were being developed, compared with a record A$268.4 billion on Oct. 31. Australia is the world’s biggest iron ore exporter.

Committed investment has peaked and may drop to A$256 billion by the end of the year, the Canberra-based agency said. Investment may decrease by A$8 billion next year and revert to levels comparable to 2007 starting 2017, the bureau estimates.

The Reserve Bank of Australia said this month resource-sector investment is near its peak and expected to remain at a high level for about the next year. BHP Billiton Ltd. (BHP), the world’s largest mining company, is targeting an 18 percent cut in capital spending in fiscal 2014 to about $18 billion as part of an industry-wide drive to boost returns from investment.

“The stock of committed investment has peaked and is projected to decline over the next five years as a result of fewer high value projects progressing through the investment pipeline,” the Bureau of Resources and Energy Economics said in a separate statement.

The investment value covers 73 projects at the committed stage from 87 in the previous period, the bureau’s report said. Liquefied natural gas, natural gas and petroleum accounted for about 77 percent of the expenditure and iron ore 8.2 percent, it said.

Bear Markets

Iron ore tumbled into a bear market last week, joining copper and gold, on concern that slowing growth in China, the world’s biggest buyer, will hurt the outlook for demand. This year will probably signal “death bells” for the commodities supercycle, according to Citigroup Inc.

The Standard & Poor’s GSCI gauge of 24 raw materials is down 2.6 percent this year, after an almost fourfold advance since the end of 2001. Australia’s economy has been boosted by a mining investment expansion to meet resource demand in emerging nations like China, the biggest user of everything from copper to coal.

“The approaching peak in resource investment, the high level of the Australian dollar and ongoing fiscal consolidation are all likely to weigh on growth over the next year or so,” the RBA said in this month’s statement on monetary policy.

Slower Pace

While mining investment is still at a high level, it has probably grown at a slower pace, it said.

“The downward shift in China’s economic growth rate combined with the decline in the commodity intensity of growth have a permanent and profound impact on global markets,” Citigroup said in a May 20 report.

China’s economic growth slowed in the first quarter while April industrial output and fixed-asset investment trailed estimates.

Rio Tinto Group (RIO), the world’s second-biggest mining company, is on course to cut $2 billion in costs this year as lower commodity prices cut revenue. The company has announced plans to sell assets and reduce $5 billion of total costs since Chief Executive Officer Sam Walsh took over in January.

To contact the reporter for this story: Phoebe Sedgman in Melbourne at psedgman2@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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