HI5003 Economics for Business: Australian Mining Industry Report

This report provides a detailed analysis of the Australian mining industry, focusing on the resource boom that began in 2003. It examines the industry's background, market structure (identifying it as a homogenous oligopoly), and the impact of the resource boom on both the mining sector and the broader Australian economy. The report discusses the phases of the resource boom, the factors contributing to it, and its effects on key macroeconomic variables like GDP, inflation, and employment. Furthermore, it analyzes the government's fiscal policies implemented to manage the boom. Using microeconomic concepts, the report also provides a demand and supply analysis to illustrate the changes in the mining market during the resource boom. The report concludes with an overview of the industry's performance and its significance within the Australian economy.

Running head: ECONOMICS FOR BUSINESS
Economics for Business
Name of the Student
Name of the University
Author note

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Executive Summary
The report is prepared to analyze the mining industry of Australia. Mining is one of vital
traditional sector of the Australian economy benefiting the economy from various aspects.
The phase of resource boom is one important phase of the economy. The event has a
significant impact on the mining sector and other major macroeconomics variables. The report
focuses on discussing resource boom in Australia that was started in 2003 and continued for
a long period and its impact on associated industry and the on the Australian economy. The
impact of resource boom however was not limited within the industry itself. The impact spread
over the economy as observed in terms of a higher economic growth and higher inflation. A
restrictive fiscal policy was undertaken during this time in order to stabilize the resource boom
along with achieving a stable outcome for the economy as a whole.

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Table of Contents
Introduction.................................................................................................................................3
Mining Industry’s background.....................................................................................................3
Assessment of market structure of mining industry....................................................................4
Introducing resource boom in Australia......................................................................................5
Analysis of Resource boom in mining sector and in the Australian economy............................6
Government policy to address the resource boom.....................................................................8
Conclusion..................................................................................................................................9
Reference list............................................................................................................................10

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Introduction
Australia is well-known as a lucky nation having enviable amount of wealth. The nation
has abandoned stock of resources underneath the soil supplying raw material for most
industries. Exports of minerals comprises 35 percent of total export of Australia. Being
situated at the doorstep of China, Australian economy enjoys a central position to exploit
growth miracle of China (Ivanova 2014). The faster growth of China’s economy significantly
increased the demand for Australia minerals. Among the mineral resources of Australia, Gold
has occupied an important position due to its historical importance. In modern Australia also
Gold remains an important and big element of the economy. In the Australian export, Gold
ranked third only after the export of coal and iron ore. Australia is the largest exporter of coal
in the world. Apart from Gold and Coal, there are several other minerals mined in Australia
giving opportunities to corporate to build a profitable and diversified mining sector. The mining
sector in Australia is responsible for production, exploration and selling of various other high-
demand commodities. These are metals such as nickel, copper, aluminium, silver, diamonds
and other precious metals (Ergas and Pincus 2014).
Realizing the importance of mining industry in the Australian economy, the report
analyzes the mineral sector of Australia. The phase of resource boom is one important phase
of the economy. The event has a significant impact on the mining sector and other major
macroeconomics variables. The report focuses on discussing resource boom in Australia that
was started in 2003 and continued for a long period and its impact on associated industry and
the on the Australian economy.
Mining Industry’s background
Australia possesses a huge supply of several minerals, hydrocarbon and other non-
mineral reserves. This helps Australia to establish a well-developed mining industry. Australia
is a world leading producers of iron ore, gold, zinc, lead and nickel. Because of huge
endowment of mineral resources Australia enjoys a comparative advantage in export of
mineral resource. Almost 50 to 60 percent of total export belongs to the mining industry. The
contribution of the industry in national output can be traced from its contribution to Australia’s
GDP. Nearly 7 percent of Australia’s GDP belongs to the mining sector (Export.gov. 2019).
Being one of larger producers of minerals, Australian mining industry provides significant
opportunities to US suppliers in terms of high demand for high-tech equipment.
Figure 1: Exports of mining industry
(Source: Garnett 2015)

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As suggested in a published report in 2016, currently there are 370 acting mining sites
on Australia majority of which are located in three states namely Western Australia, New
South Wales and Queensland. In volume terms iron ore and coals are the two most important
minerals mined in Australia. The industry has undergone a phase of continuous expansion
lasted for the period from 2003 to 2013 (Mason 2014). In this phase the industry experienced
a considerable increase in investment along with construction of several new projects. The
expansionary phase however ended after 2013. After that the economy experienced a clear
transition from construction to the production and export expansion.
In the mining sectors, there operates a large number of different multinational
companies such as BHP Billiton, Rio Tinto, Chalco, Shenhua, Newcret, Xstrata and south32.
Besides the large companies there are various small companies operating in the industry
those are listed in Australian Stock Exchange (Fleming and Measham 2014). Mining
equipment, service and associated technology export amount over $2 billion per annum.
Figure 2: Employment in mining sector
(Source: The Conversation.com 2014)
In addition to contribution in GDP and export, the industry makes considerable
contribution to the economy by hiring a large number of workers. As depicted in the above
figure employment in the mining industry has increased overtime for both males and females.
Given the nature of work, proportion of female employment in mining is relatively less than its
counterpart of male employment however employment has increased with passes of time.
The industry currently employs more than 200, 000 workers. There is a wide range of job
opportunities and vacancies accounting a significant proportion of national employment.
Assessment of market structure of mining industry
Determination of market structure is one important aspect of making an industry
analysis. The structure of market helps to understand decision within the industry related to
price, output and other aspects. The four commonly discussed types of market structure are
perfectly competitive market, monopoly market, monopolistically competitive market and

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oligopoly market. The particular type of market structure of an industry depends on various
attributes such as presence of sellers and buyers, nature of product sold, entry barriers and
state of short run and long run profit. In case of Australian mining, economists characterize
the industry by the presence of a very high concentration ratio. Concentration ratio is
computed based on percentage of market share of dominating firms. Higher the ratio, more
concentrated the market is. Despite presence of more than 1300 mining companies,
production in mining sector is dominated by only a few large firms. BHP Billiton, Shell,
Chevron and Rio Tinto are some of the dominating companies in the Australian mining
(Garnett 2015). This type of characteristics of Australian mining suggests that the market
structure resembles the features of an oligopoly market. A market is identified as an oligopoly
market when few dominating firms in the industry captures a considerably large market share
and sell either homogenous and differentiated product. In case of mining industry, there is not
much scope for product differentiation. The mining industry thus can be characterized as a
homogenous oligopoly market. In an oligopoly market, there exists either natural or artificial
entry barriers (McKenzie and Lee 2016). Setting up of a mining firm generally requires a
relatively large amount of capital. Huge capital requirement and dominance of existing large
firms thus work as natural entry barriers for mining industry. Given the oligopolistic nature of
the market, dominating companies can sustain an above normal profit even in the long run.
This provides the dominating companies to expand continuously.
Introducing resource boom in Australia
The resource boom is Australia presents one of the most important event for the
economy that sustained for a considerably long time. Globally, the price of mineral exports
increased more than thrice in the last ten years to 2013. The resource boom in Australia is
segregated into three different phases. In the first phase, there was an increase in Australia’s
terms of trade along with a favorable exchange rate (Brueckner et al. 2013). The main reason
behind increase in terms of trade was spread of industrialization and urbanization in majority
of emerging Asia. In this context, the increased demand of mineral export from China needs
special attention. There was a notable increase in global demand of commodities used
particularly in production of steel and other energy export. Because of large endowment of
these resources Australia benefitted significantly from the increase in global commodity
prices. Australia during this time was experienced nearly 82 percent increase in its terms of
trade. Realizing the growing opportunity in resource sector there was a rapid surge in
investment in the resource sector. Investment increased particularly in iron ore, coal and
LNG. Apart from rising global commodity price, other factors contributing significantly to the
resource boom include economic disruption due to global financial crisis, increase in
household saving rate and increase in productivity growth of Australia (Mercer, de Rijke and
Dressler 2014). In the last phase of resource boom, the economy experienced a rapid
expansion in production of minerals and associated exports.

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Figure 3: Selected resource export during resource boom
(Source: rba.gov.au. 2019)
Since 2014 due to slowdown in China’s economic growth, the glorious period for
Australian mining industry however came to an end. The economy of Australia however still
remained stable due to expansion of non-mining activities and a notable performance of
Australia’s service sector.
Analysis of Resource boom in mining sector and in the Australian economy
The resource boom primarily resulted from an increase in global commodity prices
related to mining sector has a long standing implication for mining industry. There was a
stronger increase in output in mining and other resource sector. Mining related construction
and business service expanded significantly during this time. At the beginning of 2000s, the
mining industry suffered from significant weakness with part of the industry experiencing a
downward phase (Measham et al. 2013). Weakness of mining sector had been reflected in
the poor performances of majority of mining companies. However, the resources boom since
provided opportunity to these companies to become a part of multinational corporation and
enjoy economies of scale. Volume of price growth was significantly higher in case of coal and
iron ore. Focus of the industry therefore clearly shifted towards these two sub sectors. The
mining boom of this time was more powerful than previously occurred resource boom. The
industry experienced a notable increase in revenue during the expansionary phase. Revenue
in the mining industry increased from 6% of GDP during 2000 to 14% of GDP by the end of
resource boom (Connolly and Orsmond 2013). Revenue of the mining sector was largely
driven by the receipts from bulk commodity exports. The increased revenue of the industry
attracted large volume of investment. Growth of investment in the sector recorded to be
increased from 1.5 percent of GDP to more than 4 percent between 2000 and 2011. Revenue
growth and associated increase in investment contributed to an increase in employment
opportunities with mining employment increased by 0.7 percent during this time. The average
growth rate of mining output recorded to be 3 percent per annum.

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Figure 4: Demand and supply analysis of mining industry
(Source: created by Author)
Impact of an event on a single industry can be analyzed using the microeconomic
concept of demand and supply. In the mining industry the dynamics of market demand and
market supply is given by the respective demand and supply curve DD and SS. Initial
equilibrium in the market corresponds to E1. As discussed previously, during the resource
boom, there was a considerable increase in demand for different minerals. As demand
expands, there occurs an outward shift in the demand curve and the initial demand curve
moves to D2D2. Following the expansion of demand, equilibrium in the industry settles at E2
(Besanko and Braeutigam 2013). The new equilibrium in the market is associated with a
higher equilibrium price and higher equilibrium quantity.
In context of overall impact of the event on Australian economy, there found to be a
positive spill over to the economy due to resource boom. The aggregate impact of resource
boom on living standard of Australia can be assessed from the difference in real per capita
GDP. Per capita disposable income of household found to be 13 percent higher than the
previous period (Bashar 2015). There was a significant increase in aggregate output leading
to an increasing in purchasing power. The gross domestic income of the nation increased by
6% due to resource boom. Statistics shows that the aggregate volume of produced goods and
services increased because of expansion of mining sector (Rba.gov.au 2014). Increased
volume of investment in the mining sector added to the national stock of capital. Higher
capital stock in turn contributed to a higher aggregate supply and higher output. Despite
several compounding and offsetting impacts, there was a net increase in real GDP by 6
percent. Increase in disposable income of household accounts for most of the increase in
purchasing power and increase in gross domestic product. Expansion of mining activities also
contributed to an increase in employment (Koitsiwe and Adachi 2015). This led to fall in
national unemployment rate. The fall in unemployment rate stimulated aggregate demand
pushing inflation rate upward.

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Figure 5: Impact of resource boom on macroeconomic equilibrium
(Source: created by Author)
The impact of resource boom on macroeconomic equilibrium depends on state of
aggregate demand and aggregate supply. The above figure models macroeconomic
equilibrium of Australian economy using the framework of aggregate demand and aggregate
supply. AD1 and AS1 are the respective aggregate demand and aggregate supply curve for
the economy. Now with expansion of various components of aggregate demand such as
consumption, investment and net export, aggregate demand increases (Mankiw 2016). The
expansion of aggregate demand is seen from the outward shift of the aggregate demand
curve to AD2. As aggregate demand expands, there is an increase in real GDP to Y2. There is
also an associated increase in price level to P2.
Government policy to address the resource boom
Economic outcomes of an event are generally determined by the interactive effect of
several factors. Appropriate policy measure during resource boom helped the economy to
attain a stable pace of growth (Sheehan and Gregory 2013). Fiscal position of Australia is
relatively strong. During 2010-11, net debt of Australia was only 6.1 percent of the GDP. In
the phase of resource boom government of Australia had undertaken a more restrictive fiscal
policy. The objective was to lower government expenditure along with lowering the inflationary
pressure. Government during the mining boom had withdrawn nearly $50 billion. The saving
of government funds helps the nation to combat future recession. The decline in government
spending further contribute to a fall in government debt and strengthen the fiscal position.
This kind of policy assisted the economy to maintain a stable pace of growth even after the
end of mining boom (Fenna 2013). Based on the strong fiscal position government can
undertake an expansionary policy during recession and therefore stabilize the economy under
recessionary pressure.

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Conclusion
Mining industry is Australia is one of the crucial sectors of the economy that is
dependent on abundant stock of natural resources. The economy depends on the industry in
terms of output and employment. Mining industry also makes significant contribution in export
earnings of Australia. More than half of the total exports of Australia are mineral resources.
Dominance of few large companies in the industry makes the industry similar to oligopoly
market. In the economic history of Australia, one notable event is resource sector. Expansion
of globally commodity price especially mineral resources increased significantly due to a rapid
expansion of demand. With Australia’s comparative advantage in these minerals, Australia
enjoyed a favorable terms of trade. The mining industry benefitted significantly from the
resource boom. This can be observed from an increase in investment and revenue of the
mining sector during this period. The impact however was not limited within the industry itself.
The impact spread over the economy as observed in terms of a higher economic growth and
higher inflation. A restrictive fiscal policy was undertaken during this time in order to stabilize
the resource boom along with achieving a stable outcome for the economy as a whole.

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Reference list
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Myth?. Economic record, 91, pp.94-108.
Besanko, D. and Braeutigam, R., 2013. Microeconomics. John Wiley & Sons.
Brueckner, M., Durey, A., Mayes, R. and Pforr, C., 2013. The mining boom and Western
Australia’s changing landscape: Towards sustainability or business as usual?. Rural
Society, 22(2), pp.111-124.
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Koitsiwe, K. and Adachi, T., 2015. Australia mining boom and Dutch Disease: analysis using
VAR method. Procedia Economics and Finance, 30, pp.401-408.
Mankiw, N.G., 2016. Brief principles of macroeconomics. Cengage Learning.
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for the mining sector in Australian society?. Rural Society, 22(2), pp.184-194.
Mercer, A., de Rijke, K. and Dressler, W., 2014. Silences in the boom: coal seam gas,
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3.pdf [Accessed 18 Sep. 2019].

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Bulletin – March Quarter 2013. [online] Available at:
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