The mining industry in Australia has experienced a boom phase in the 2000s. The increase in commodity prices has been attributed as the core reason why the industry has experienced the new revival. The increase, which has gone up by up to 300%, has been resulted by excess demand, which could not be met by the existing global suppliers. This period of increased commodity prices precedes one where the prices were extremely low when compared to the prices in the United States. A limited supply has the effect of escalating the commodity prices. Some of the reasons why the 1980 through to the 1990s experienced decreasing supply are as follows. First, investors were discouraged from expanding the ailing industry. Coupled with the collapse of the Soviet Union, the financial crisis experienced in the Asian continent affected Australia’s mining industry together with that of its trading mining partners. Thirdly, investors were unwilling to spend funds on exploration. Fourthly, as companies resulted into mergers in an attempt to improve the declining profit margins, the result was that the consolidation led to a merge of the capital expenditures and budgets of the companies thereby limiting the level of investment that was capable of being made if the companies had remained as independent entities.
The Australian steel industry had in 1973 been spurred by the increased demand by Japan of steel commodities. The financial crisis in Asia coupled with the recession experienced in the united states led to the almost collapse of the mining industry. The near collapse was also attributed to the intimidations by the United States to impose trade barriers and the total ban by the Chinese government on the construction of steel facilities led to the stagnation of the industry.
Emerging economies such as that of china have made significant contributions to the revival of the steel industry. China’s domestic market was anticipated to lead to the revival of the industry. Steel intensity refers to the cycle where steel use subsides when infrastructure is in place and the people start demanding services. The steel intensity of china has been fuelled by increased urbanization and industrialization in the country. These are some of the reasons why china’s steel intensity period is likely to be extended. The biggest energy consumers are likely to be China and India both of whom have increasing population.
The Australian mining industry during the 2000s
Australia is sufficiently endowed with reserves of minerals ranging from coal to gold. The country is therefore likely to benefit from the growth in the steel and energy demand. These reservoirs have the potential of sufficiently supplying current and future demand. Given the current rate of oil extraction, the reserves are likely to be drained in twenty years.
Australia’s mining industry has until 2000 undergone a downward phase in development. This was due to the low investment in the industry and the financial crisis faced up by the Asian continent. This collapse of the industry saw several mining companies collapse while others resulted to consolidations, which had the effect of reducing investment. The consolidations were sought to create economies of scale and possibly increase company profitability. BHP-Billiton and the acquisition of north limited and Xstrata by Rio Tinto as some of the land mark consolidations that took place in the Australian mining industry. In 2000, Australia experienced a revamp in the industry, having a comparative advantage in the export of iron and coal commodities. Although, the countries prominence in the export of other mineral components and oil has shrunk, it has shifted towards the production of liquefied natural gas. The mining boom in 2000s led to an improved economy in terms of investment, employment and GDP. The industry is undergoing capacity expansion due to increased injection of exploration expenditure by investors.
Theories such as Heckscher-Ohlin-Samuelson explain the factor effect and the income of an increase in commodity prices to the economy. The magnitude of these effects though hard to determine can be determined using the structural change index that is represented by a formulae.
Other direct effects that the boom in the mining industry has had on the country’s economy are increased revenues, increased employment due to the direct labor usage in the mining industry. It has led to the growth in the use of intermediate inputs used in the mining operations. It has also led to a growth in the level of taxes and royalties paid to the government. This translates into increased development through government expenditures. The boom also has the effect of increasing dividends payments to the companies’ shareholders and on the retained earnings by the companies. These effects can also be analyzed in terms of the effects to the various states.
A comparison of the booms experienced in the mining industry reveals that although the rise in commodity prices had largely caused various booms over the years from 1960, none of those booms compared to one in the 2000. This is because, unlike other booms that did not lead to economic stability of Australia, the 2000 had various positive macroeconomic effects as discussed above
Evaluation and appraisal of the article
The evaluation and appraisal of this article commences with an evaluation of the relevance of the article to the readers. This article is relevant as it informs the readers on various aspects of the boom in the mining industry. The article logically explains the origin of the mining boom in the Australian economy. The increase in demand to the extent that it exceeds commodity supplies has been attributed to the rise in commodity prices that has consequently led to the increase in profitability of the industry. The industry has attracted investors who were originally averse to inject investment funds to expand the firms and to finance explorations. The article then proceeds to give an analysis of the condition of the mining industry in the 2000s, which is the latest boom period for the industry. The effects of the boom to the broader economy have then been analyzed. The macroeconomic effects on investment, employment, tax and royalty have been discussed. The factor transfer effects and the income effect theory have been used to establish the impact of the boom to the economy. A comparison of the booms as experienced in Australia has then been analyzed to bring out the real relevance of the 2000 boom to the advancement of the Australian economy.
The second evaluation question relates to whether the article has added anything new. The information contained in the article contains a detailed explanation of the effects of the mining boom to the economy. Although there is limited information relating to this topic, the author has managed to chronologically arrange the points in such a way that the reader understands them.
Thirdly, the discussion paper has been written by Connollye and Orsmondd and presented to the Reserve Bank conference held in Australia. The authors have confidence in the content of the article to the extent that it is presented at a conference. The paper has been prepared in collaboration with other members from the Reserve Bank of Australia. This then qualifies the article as having been written by person knowledgeable in macroeconomics and in the mining industry.
Fourthly, graphs have been used to enhance the statistical analysis of the effects and the causes of the boom to the overall economy. Graphs simplify the understanding and interpretations of the data. The graphs have enhanced the article for purposes of trend analysis and comparison of effects and causes of the boom as well as the impact of the boom over several years. Trend analysis of the effects in terms of the different states has best been brought out by making use of graphs.
The data and information used in this article has been sourced from secondary sources such as those contained in government journal, library books and articles written by other writers of macroeconomic issues. The content in the abstract compares to that in the discussion and the conclusion sections. The conclusion has relevance to the discussion as nothing new has been introduced in this section. The graphs and consequent interpretations are consistent with the discussion in the conclusion section.
The article has been prepared in collaboration with other writers before its presentation to the bank. This provides the level of assurance that the article has been peer reviewed. The effect of peer reviews articles is that they meet the quality control measure used to determine the confidence accorded to the findings. Peer reviews expose the article to individuals who have diverse expertise in the field discussed in the article (Connolly & Orsmond, 2011, p. 5). The writer has used traditional models to elaborate on the effect that the economic boom has had on the Australian economy. the use of this models increases credibility and gravity of the article.
The findings of this article are listed below:
The booms in the Australian mining industry over the years have been caused by the increase in commodity prices of mineral components. The 2000s boom has had positive effects onto the economic condition in Australia.
The boom has been fueled by the increased demand of commodities by emerging economies such as India and china. The comparative advantage, which was initially enjoyed by Australia, faces the possibility of absolute disadvantage due to the continued depletion of mineral deposits.
Increased mining activities in the country have led to the decrease of the unemployment level due to the direct use of labor in the mining fields. It has led to the growth in the use of intermediate inputs mainly services, increased investment and revenue received by governments in the forms of taxes and royalties.