Australian Mining Industry: HI5003 Economics for Business Report 2019

This report provides a detailed analysis of the Australian mining industry, with a particular focus on the resource boom that occurred between 2003 and 2016. It examines the industry's background, market structure (characterized as an oligopoly dominated by a few major players like Rio Tinto a...Read More

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Australian Mining Industry
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1Australian Mining Industry
Executive Summary
This report discussed the mining industry in Australia in details with focus of on the resource
boom that occurred in 2003 and lasted until 2016. It discussed how the resource boom impacted
the mining industry and thereby helped in development of the Australian economy. However, the
current adversities in the mining industry have slowed down the economy of the country. Thus,
the government policies that improve the industry and thereby impact the economy of the
country positively have been suggested.

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Table of Contents
Introduction......................................................................................................................................3
Background of the Australian Mining Industry...............................................................................3
Market structure of the Mining Industry.........................................................................................6
Resource boom in Mining industry.................................................................................................7
Mining industry associated issues in Australia................................................................................9
Impact of issues of the mining industry on Australian economy..................................................10
Policies taken by the government..................................................................................................10
Conclusion.....................................................................................................................................11
References......................................................................................................................................12

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Introduction
Growth of economy of a country depends on its industries and similarly for Australia the
industries present in the country contributed significantly in its growth. This report discusses the
mining industry of the country. However, there are various industries that contributed in the
economy of Australia and they are energy, banking, property and agricultural industry. Among
all these industries mining and banking industry are the large ones. Data on the mining industry
depicts the significance of the industry and the report discusses that too. A significant amount of
land area in Australia is covered by the mining industry. Around 0.7% land of the country is on
lease, 0.1% of land is completely dedicated for conducting mining works. And 0.02% land is
directly influence by the mining industry. A large amount of Gross Domestic Product (GDP) of
Australia comes from the mining industry. The mining industry extracts and deals in various
products such as aluminium, zinc, natural gas, uranium, nickel, coal, copper, petrol, silver, gold
and diamond. A summary of the market structure of the mining industry along with overall brief
of the industry is being discussed in the report. The report further puts emphasis on the issues of
the mining industry as it significantly impacts the economy of Australia. Along with the issues,
emphasis given on the period of resource boom in the industry and discusses its impact on the
industry as well as on the country. In the later part of the report discussion on policy intervention
by the government and critically discusses the effectiveness of the policies implemented. The
report thus discusses the challenges faced by the mining industry in Australia with focus on the
overall industry

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Background of the Australian Mining Industry
The mining industry in Australia emerged in the mid-19th century and thus it is an old
industry that operates still today in the country. The industry has thus expanded widely and has
become one of the biggest contributors in the GDP of the Australian economy. The share of
mining industry in the GDP of Australia is 7% (Globaltenders.com, 2019). The minerals or
products that the mining industry produces or extract mostly go into exports. Around 40 % of the
total produce is consumed domestically and remaining 60% is exported to other countries
(Export.gov, 2019). It is evident from the data that in the last decade the mining industry in
Australia grew by 6.5% annually. Considering, the volume of the mining products in the export
of the country it is evident that mining commodities earns the highest revenue for the country
(Tan, 2017). The earning from the mining exports in 2018 was recorded as $248 billion and of
the total export earnings by Australia this value accounts for 72% (Global Mining Review,
2019). And of the total mining product export in 2018, export value of coal is the highest and its
total worth is $66 billion.

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Figure 1: Impact of mining industry in export and employment
Source: (Static.treasury.gov.au, 2018)
Apart from being one of the largest contributors in the economy of the country the
mining industry provides employment to a large number of people in Australia. The number of
employees in the mining industry in Australia was close to 200,000 in 2017. Thus, due to large
number of person employed in the industry it is regarded as one of the largest employers of the
country. It has been observed that the mining industry is wide spread in the country and thus
people from all around the Australia works in the mining industry. The mining industry in
Australia has seen many ups and downs since its emergence but the resource boom is the most
memorable period for the industry because during this period the industry grew at humongous
pace. The resource boom took place during 2005 and 2013 period. During this 9 year phase the
investment attracted by the industry was remarkably large. The support the industry gained
during the resource boom was mainly from new mines discovery and expansion of existing mne
companies.

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Figure 2: Monthly growth of mining industry and ASX 200
Source: (Pwc.com.au, 2017)
The first quarter of 2015 the mining industry struggled and the output declined. The
industry, however, did not have to face the adverse conditions for long and from the second
quarter onwards the ASX200 of the industry that depicts the growth in the industry. Gold, coal
and iron ore played a crucial role in improvement of the industry and accounts for the maximum
share in the revenue generated by the mining industry. In 2017, the amount of net profit
generated by the Australian mining industry estimated to be $1.6 billion (CFMEU Mining and
Energy, 2018). Large amount of mining products of Australia are exported to other countries and
the equipment that are used in the mining industry of the country are imported from countries
like China, Germany, Japan and the United States. Therefore, the mining industry of Australia is
dependent on other countries to run its business successfully. Moreover, the industry does not
have many companies and thus it is dominated by few companies such as Rio Tinto, Evolution
Mining, BHP Billiton, UGM Australia and Barrick Australia Pacific.
Market structure of the Mining Industry
The mining industry is an industry that requires huge amount of investment and thus to
make the industry cost effective limited number of companies operate in the industry and thus
the companies such as Rio Tinto, UGM Australia and BHP Billiton dominates the industry.
Therefore, it can be concluded that market structure of the mining industry is an oligopoly
(Tyers, 2015). Oligopoly is a markets structure in which market players or firms have power
over the market and can decide the price of the products by themselves. Therefore, price in an
oligopoly is not determined by free market forces. Apart from price decision companies in this

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market also decide their output. Hence, depending on the objective of the firms they decided how
much to produce and charge price. Thus, under this market structure the price stays above and
output remains below free market level. Furthermore, entering mining industry for a new firm is
highly expensive as cost of establishing mining extraction facility is very high. Similarly, for an
existing firm making an exit is also very difficult as cost of leaving the industry is also high due
to presence of sunk cost. Hence, the market features significant barriers to entry and exit (Min,
Kim & Zhan, 2017). Apart from presence of sunk cost any new firm willing to enter the market
will have to face restriction from the existing dominant firm. Also it is difficult for a new firm to
take the burden of large sunk cost and participate with the dominant firms with in price war.
Thus, a price war makes the new small firms bankrupt and eventually leaves the market.
Therefore, the market structure enables the large companies to dominate the industry. Other
important characteristics of the markets structure are presence of supernormal profit, loss of
social welfare and loss of consumer price (Bradshaw, Linneker & Overton, 2017). The firms in
this market often tries to collude with each other that allows the firms to act as a single firm and
the market depicts monopoly features and charges high price to the customers and appropriates
consumer surplus.
Resource boom in Mining industry
The first boom in the mining industry occurred in 1850, which was also known as the
gold rush. The increase in resource at that time was highly significant as it boosted the economy
of Australia (Lawrence, Davies & Turnbull, 2016). However, it is said that the resource boom in
the mining industry in 2003 exceeds the impact brought by the resource boom during the gold
rush. Thus, it is considered to be the most significant resource boom in the history of Australia.
Resource boom that occurred in 2003 increased the price of iron ore and coal significantly. The

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increase in the price of the mining products of Australia was due to the increase in demand of
China for the products since it has been one of the largest importers of Australian mining
products especially iron ore. During the resource boom and the increased demand for the mining
products the price of the products had increased by 100% and in case some products it was more
than that. The major products price of which were noticed to rise significantly were iron ore,
natural gas, thermal coal and metallurgical commodities. The demand for these products was the
highest among the all mining products that Australia did produce or extracted during that time
(Davis, McCarthy & Bridges, 2016). The price for thermal coal rose close to $180 per tonne
from $50 per tonne. However, the increase in iron ore’s price is the maximum and it was around
750 %, the price for iron ore increased to $170 per tonne from $20 per tonne. The boom that
occurred in the mining industry in Australia throughout the Fraser years increased the investment
in the sector to 3.5% of the GDP, which is much higher than the usual investment volume.
Conversely, resource boom that occurred in 2003 surpassed all the past record in terms of
investment growth including the boom during gold rush (Powell, Ryan & Lamb, 2017).
Investment occurred in this period was equivalent to 8.5% of the GDP of Australia (Abc.net.au,
2016). Owing to the resource boom the benefit that the Australian mining industry received was
quite significant. Revenue generated for the mining industry was high and the employment
increased significantly during this boom period. Hence, the employees of the industry also had
gained a lot from the resource boom of the mining industry. The Australian economy had
experienced huge inflow of cash due to revenue in the mining industry. The resource boom is
one of the primary factors that helped the country to encounter the financial crisis arose due to
the recession of 2008-2009 and tactfully avoided its adverse effects (Brown, Davis and Mayes,
2016). The income of the individuals especially who were employed in the mining industry had

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increased and thus demand for goods in the economy had risen too and due to the induced effect
the income form the others sectors had increased and overall income of the Australian economy
had increased. Therefore, the resource boom in the mining industry had helped the economy of
the country to expand. As a result, the country’s purchasing power increased significantly. It was
observed that the per capita income of the country had also increased during the period and it
was recorded as 13% (rba.gov.au, 2014). During this period of resource boom, the rate of
unemployment was lower than usual and impacted the inflation rate. Increase in income and
increase in employment had raised the consumption and as a result demand increased and with
the induced effect the price of the goods increased and hence inflation rate increased too.
Therefore, all other manufacturing companies in the economy of Australia benefitted of the
resource boom. The companies that gained from the resource boom were from construction,
electricity, distribution services and water and gas industries.
Mining industry associated issues in Australia
Among the major industries in Australia, mining industry is the one that contribute
significantly in the GDP of the country. It is already been observed that the mining industry had
benefitted significantly from 2003-2016 resource boom, however in the recent years, the industry
is facing difficulties. The adversity the industry is facing is due to the difficulties in the
economical, organizational and natural causes. The cost of extraction has increased since existing
mines has gone deeper and the companies are struggling to find new mines. Thus, the production
of the mining industry has lowered in the recent times. Therefore, the mining industry is
struggling and the people are less interest in the industry and do not recognize as a potential
employer and thus the industry is not able to get enough workers and the employment in the
industry decreased. Unlike the resource boom, the demand for the products of the mining

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industry is low currently and on the other hand the cost of extraction has increased due to the
unavailability of new mines and reduced yield of the existing mines (Zhang & Moffat, 2015).
Hence, if this condition of the industry persists the price of the products will reduce and the
profitability of the industry will decline in future and the industry might lose its importance it has
in the economy of the country. Owing to this the economy of the country will suffer and
economic growth of the country will be hampered.
Impact of issues of the mining industry on Australian economy
Mining industry has always played a crucial role in development of the Australian
economy; however, the adversity in the mining industry would affect the Australian economy as
well. The country depends on the mining industry for employment, export and construction
sector and taking into account the volume of mining products in the export sector it is evident
that the decline in the industry hampers the export sector hugely. As a result, the industries that
depend on the mining industry will also decline. Therefore, the income of individual will fall and
thereby demand in the economy declines further causing decline in the economic output of the
country. Hence, the government of Australia should take effective polices to deal with the
adversities occurring due to mining industry
Policies taken by the government
Government of Australia should take effective policies to mitigate the adverse condition
of the mining industry such that the economy of the country recovers from the current dwindling
condition. The possible policies that can be implemented are relaxation on laws for finding new
mines, easy licensing policy for establishing new mining company and import promotion for
importing new mining equipment and technologies from other countries that will definitely

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improve the condition of the industry. More mining companies, new mining fields and new
technologies will increase the productivity of the industry and lowers the extraction cost and
thereby the sustainability and competitiveness of the industry will improve that will contribute in
the development of the country.
Conclusion
The above discussion lead to the conclusion that the mining industry is one of the most
important contributors to the GDP of the Australian economy any boost or decline in the industry
affects the economy of the country correspondingly. It is evident that during the resource boom
the economy of the country flourished and on the other hand in the recent years the fall in the
industry resulted in the slowdown of the economy. The commodity export sector of the country
is dominated by the mining industry and it employs a large number people. Therefore, the
mining industry is of utmost importance. Thus, the government should implement effective
policies like easy licensing, import of new mining technologies and relaxation in the law of
excavation for finding new mines. Implementation of such polices would improve the mining
industry and thereby help in growth of the Australian economy.

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References
Abc.net.au (2016). The mining boom that changed Australia. [online] Abc.net.au. Available at:
https://www.abc.net.au/radionational/programs/rearvision/the-mining-boom-that-
changed-australia/7319586 [Accessed 6 Aug. 2019].
Bradshaw, S., Linneker, B., & Overton, L. (2017). Extractive industries as sites of supernormal
profits and supernormal patriarchy?. Gender & Development, 25(3), 439-454.
Brown, C. A., Davis, K. T., & Mayes, D. G. (2016). Regulatory change in Australia and New
Zealand following the global financial crisis. In The First Great Financial Crisis of the
21st Century: A Retrospective (pp. 219-248).
CFMEU Mining and Energy 2018, BHP making loads of money, CFMEU Mining and Energy.
viewed 29 May 2019, <https://me.cfmeu.org.au/news/bhp-making-loads-money>.
Davis, K., McCarthy, M., & Bridges, J. (2016). The Labour Market during and after the Terms
of Trade Boom. RBA Bulletin, March, 1-10.
Global Mining Revie (2019). Australia’s mining industry set export record in 2018. [online]
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Aug. 2019].
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Lawrence, S., Davies, P., & Turnbull, J. (2016). The archaeology of Anthropocene rivers: water
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contingency approach. European Journal of Marketing, 51(1), 2-22.
Powell, R., Ryan, M., & Lamb, S. (2017). The impact of the mining boom on the dining industry
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Pwc.com.au (2017). Aussie Mine 2017. [online] Pwc.com.au. Available at:
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Tan, L. (2017). Western Australia. Redback Publishing.
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Economic Review, 48(4), 333-356.

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Zhang, A., & Moffat, K. (2015). A balancing act: The role of benefits, impacts and confidence in
governance in predicting acceptance of mining in Australia. Resources Policy, 44, 25-34.