PERTH (miningweekly.com) – Mining investment in Australia was expected to decline by nearly 60% over the next three years, compared with the 2014/15 levels, while job losses in the sector would take the same trend, economic forecaster and industry analyst BIS Shrapnel reported on Monday.

“We haven’t hit bottom yet on commodity prices or investment, which will continue to be a key drag on Australian economic growth from here,” said BIS senior manager of the infrastructure and mining unit, Adrian Hart.

“While mining production will continue to rise strongly, led by new liquefied natural gas exports, the facts are that this growth will be far less employment intensive than the investment phase, albeit offering contractor opportunities for maintenance and facilities management. Indeed, we are forecasting a further 20 000 job losses in the mining industry over the next three years, on top of the 40 000 direct job losses since the investment peak.”

Hart said that excluding oil and gas, mining investment has already halved since the peak, and we expect it to fall a further 40% over the next two years, a 70% decline overall from top to bottom, led by further declines in coal, iron-ore and gold.  Add in the sharp fall in oil and gas investment as LNG projects were completed, and the outlook was even worse.

“The persistent drag from falling mining investment has important ramifications for the economy. Quite simply, Australia badly needs new investment drivers beyond mining to provide sustainable growth in jobs and incomes. While other tradable sectors of the economy, such as tourism, are benefitting from the lower Australian dollar and starting to invest, the onus is also on governments to stand up and get back on the job of investing in productive public infrastructure.”

Despite the fall in investment, mining production was expected to rise 6% a year over the next five years, driving a corresponding increase in mining operations activities and export volumes.

“A significant volume of capital that has been injected into the mining industry is still to fully translate into expanded mine production,” said BIS economist and report author Rubhen Jeya said.

“The value of mining production has grown at a yearly average rate of 7.1% over the past five years, and there is more growth to come. Mining production is forecast to expand by over one third again over the next five years, around double the pace of the national economy, taking the value of industry output to $186-billion in gross value added terms (GVA) by 2019/20.”

However, despite the expected growth in production, BIS expected challenging conditions to remain a staple for both miners and contractors.

“The industry continues to be squeezed given a fundamental global oversupply now plaguing most commodities. The slowdown in demand from China is the predominant factor driving weaker demand growth overall, while a fight for market share from lower cost producers is still adding sharply to supply. These conditions are expected to persist over several years, keeping commodity prices weaker,” Jeya said.

BIS predicted that eventually, the current strike in investment would eradicate the oversupply and allow stabilisation and recovery in commodity prices, but this was not expected until towards the end of the decade.

“Even at sub-7% per annum economic growth, China is still adding the equivalent of another Australia each year to the value of its economy. As China continues to shift its engine of growth from investment to consumption, we will eventually see a staggered recovery across most metals and minerals, particularly those which will service the growth in middle class consumer demand, such as copper, gold, and base metals,” Jeya added.