The global boom in commodity prices is over and Australia must improve productivity in order to remain competitive, Resources Minister Martin Ferguson said.
“The easy earnings we get out of high prices are now gone,” Ferguson told Bloomberg Television in an interview from Canberra today.
While Australia’s economy grew about 4 percent in the first half from the previous year on the strength of resource-industry investment and consumer spending, a plunge in the price of iron ore and a high currency prompted mining companies including BHP Billiton Ltd. and Fortescue Metals Group Ltd. to put off projects and cut employees in the past month.
BHP, the world’s biggest mining company, last month decided to delay approval of an estimated $33 billion expansion of the Olympic Dam copper, uranium and gold mine in South Australia. Fortescue, Australia’s biggest iron ore producer after Rio Tinto Group and BHP, said this month it’s cutting its full-year capital spending forecast by 26 percent to $4.6 billion.
“We have to accept that here on in it’s going to be a lot of hard work to actually expand capacity rather than rely on increases in prices,” Ferguson said.
Iron ore prices fell to a three-year low this month amid stalling demand for steel in China. The commodity jumped 5.7 percent on Sept. 14 to $101.60, the highest since Aug. 22, after China approved plans to build roads, subways, railroads, sewage-treatment plants, ports and warehouses and the U.S. Federal Reserve announced monetary stimulus.
Australia’s dollar rose 1.6 percent last week, the most since June, and bought $1.0537 at 11:01 a.m. in Sydney today. The high currency has increased production costs at the nation’s resource projects relative to U.S. dollar revenues.
“We’re still competitive but the pressure is on us,” Ferguson said. “The pressure is on management, the pressure is on the workforce, the pressure is also on government at a state and federal level, for these resource companies that we build the necessary infrastructure, all aiming to improve productivity.”