HI5003: Analysis of the Mining Industry and Resource Boom in Australia

This report provides an in-depth analysis of the Australian mining industry and the resource boom that occurred from 2003 to 2016. It examines the industry's background, market structure, and its contribution to the Australian economy in terms of GDP, employment, and export income. The report details the factors that drove the resource boom, including rising commodity prices and increased global demand, particularly from emerging economies like China. It also assesses the impacts of the boom on the mining industry, including increased investment, output, and employment, as well as the broader effects on the Australian economy, such as changes in per capita income, terms of trade, and aggregate demand. Furthermore, the report discusses the government's policy responses to stabilize the economy during and after the boom. The analysis includes relevant figures, tables, and economic models to illustrate the key concepts and trends, offering a comprehensive overview of the sector's evolution and its significance to the nation.

Running head: MINING INDUSTRY AND RESOURCE BOOM IN AUSTRALIA
Mining Industry And Resource Boom in Australia
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1MINING INDUSTRY AND RESOURCE BOOM IN AUSTRALIA
Executive Summary
The report evaluates dynamics of mining industry in Australia. Mining industry is one of most
vital sectors of the economy. The industry though undergone several ups and downs, the
resources boom sustained for a considerably long period. The importance of mining sector
can be evaluate in terms of its contribution in GDP, employment and export. Mining industry
in Australia is a highly concentrated industry with large firms controlling majority of market
share. The resource boom initially started in 2003. Increase in global commodity prices.
Favorable terms of trade and exchange rate all led to a rapid growth of the sector. There was
a significant growth in output of mining and associated business sector. Increased investment
in mining sector resulted in an increase in productivity and employment of the sector.
Government of Australia took appropriate policy measure to stabilize the mining industry and
the entire economy.

2MINING INDUSTRY AND RESOURCE BOOM IN AUSTRALIA
Table of Contents
Introduction.................................................................................................................................3
Background of mining industry...................................................................................................3
Market structure..........................................................................................................................5
Resource boom in Australia from 2003 to 2016.........................................................................5
Impact of resource boom............................................................................................................5
Mining industry........................................................................................................................5
Australian economy.................................................................................................................7
Government policy......................................................................................................................8
Conclusion..................................................................................................................................9
List of References.....................................................................................................................10

3MINING INDUSTRY AND RESOURCE BOOM IN AUSTRALIA
Introduction
In Australia Mining is regarded as one of the important primary sectors making
significant contribution to Australian economy in terms of providing export income,
employment and royalty income. Since a very long period, expansion of mining industry has
significantly encouraged growth of population through immigration. This was particularly
prevalent in 1850s due to gold rushes. Different types of ores, gems and precious minerals
have been mined since several past years (Marcos-Martinez, Measham and Fleming-Munoz
2019). A large variety of metals are still mined across the nation. A significant portion of
minerals that are mined is exported to different nation without much making much processing
within the nation. Mining is an early source of export earnings which is further used to pay for
imports. Primary minerals and other mining resources of Australia include Iron ore, Nickel,
Copper, Aluminium, Gold, Copper, and Silver, Uranium, Diamond, Zinc, Opal and others
(ig.com 2019). The report studies mining industry of Australia particularly the resource boom
that the economy experienced from 2003 to 2016. This was the largest resource boom that
the economy experienced ever. The resource boom not only helped to flourish mining
industry but also made considerable contribution to overall economic prosperity.
Background of mining industry
The mining industry in Australia dates back to gold rushes during 1850s’ is one of the
most well-established sector of the nation. The industry contributes a significant portion of
GDP of the nation with the share being 7 percent. Mining industry in Australia is largely export
oriented with minimal processing done in onshore. It is since 2007-08 that mining has
accounted nearly 50-60 percent of national export. Australia is counted among the top five
producers of iron ore, gold, lead, nickel and zinc. In 2016, there were nearly 370 operating
mines in Australia (Eklund 2015). One third of the mines is located in Western Australia, one
quarter is located in Queensland, and one fifth are in New South Wales. These are the three
most important mining states of Australia.
The industry experienced a period of sustained growth from 2005 to early 2013. During
the expansionary phase there was a significantly strong growth in investment and other
investment projects. During this time value of mining industry has increased to $147 billion in
2012 from $24 billion in 2003 (Ellem and Tonts 2018). The sharp increase in industry growth
was mainly resulted from expansion of mineral export especially coal and iron ore. The mining
boom however is over now causing the industry to lose its value to some extent. The figure
below shows historical trend in value of mining industry.

4MINING INDUSTRY AND RESOURCE BOOM IN AUSTRALIA
Figure 1: Value of mining industry
(Source: Phillips 2016)
Mining and associated industries provide employment to a large number of people.
During the expansionary phase of mining industry, there was a significant increase in industry
associated employment.
Figure 2: Investment and employment in mining industry
(Source: Ellem and Tonts 2018)

5MINING INDUSTRY AND RESOURCE BOOM IN AUSTRALIA
There is a total of 26 public listed mining companies in Australia backing heavily the
resource sector. Of these some of the biggest companies include BHP Billiton, Rio Tinto and
South 32.
Market structure
The type of market structure of an industry is determined by degree of competition in
the market which in turn is determined by the number of market participants (Nechyba 2016).
So far as mining industry in Australia is concerned, the industry has a high degree of
concentration. Despite presence of several firms, the industry is largely dominated by few
large firms. The dominating players in the mining sector include BHP Billiton, Xtrata, Shell,
Rio Tinto, Woodside Petroleum and Chevron (The Conversation.com 2015). High
concentration ratio of the mining industry suggests the market structure is oligopolistic in
nature. In an oligopoly market there are few dominating firms controlling a majority of market
share. Like, oligopoly market dominance of few large firms in the industry indicate that the
industry has characteristics of an oligopoly market.
Resource boom in Australia from 2003 to 2016
Resource boom in Australia is one of the significant events affecting mining industry
and the overall economy. The resource boom began since 2003. During this time commodity
price such as coal and iron ore began to increase. In the first phase of resource boom was
initiated from the increase in terms of trade and rise in exchange rate. Rapid industrialization
and urbanization of emerging economies of Asia especially in China. This led to a dramatic
rise in global demand for commodities used in steel and energy production. A smaller
increase in global supply relative to demand ultimately results in an increase in prices of
commodities to which Australia is endowed with. Since 2003/04 Australia experienced a
larger increase in the terms of trade (Marais et al. 2018). In the second phase of resource
boom there is a significant increase in investment in the resource sector. There was a rapid
expansion of investment in coal, iron ore and liquefied natural gas along with a significant
growth in extraction of resources The most important resources in Australia were the bulk
commodities such as LNG, iron ore, thermal and metallurgical coal. Price of iron ore during
this time was first increased from $20 to $30 per tonne and then it picked around $170 per
tonne. Like iron ore, price of thermal coal increased from $40 to $50 per tonne and then it
peaked up to $150 or $180 a tonne (Chapman, Plummer and Tonts 2015). The phase of
resource boom indeed was a very big boom for the mining industry and contributed positively
to output and employment growth of the economy.
Impact of resource boom
The impact of resource boom was wide spread. There was a significant expansion in
output of mining industry and associated sectors. The expansion of industry output in in turn
reflected in creation of new jobs in mining and related industries which ultimately led to a
higher overall growth of the economy.
Mining industry
The resource sector responded greatly to the huge increase commodity prices. There
was a considerable increase in productive capacity of the sector. In Australia, expansion of
investment in coal, iron ore and LNG sector led to increased extraction of the resources
(Phillips 2016). An increase in resource investment contributed to an expansion of output in
mining industry. Historically, the mining boom of 2000s was relatively larger compared to the

6MINING INDUSTRY AND RESOURCE BOOM IN AUSTRALIA
economy’s share. The mining boom was more important than previously occurred boom in
terms revenue, employment and investment. This was mainly driven by growth of bulk
commodity export (Perry and Rowe 2015). Share of investment in the mining sector increased
from 1.5 percent of GDP in the beginning of 2000 to more than 4 percent of GDP after the
recent boom. Employment in the mining sector rose from 1 percent in 2000s to 1.7 percent
during the last boom. This was the highest share in the last 50 years. These shares are
continuing to increase even in the current decades.
Figure 3: Statistics related to mining industry in Australia
(Source: Phillips 2016)
Shown from above figure, there is a rapid growth in revenue of the mining industry.
The output growth of the industry in recent year is recorded to be 3 percent. The output
growth of the industry though is relatively smaller than the revenue growth employment
almost doubled along with a strong growth in capital stock (Jenner et al. 2019). The scenario
in the mining industry can be illustrated using the following figure. The scenario in the mining
industry can be illustrated using the demand and supply graph of the industry.

7MINING INDUSTRY AND RESOURCE BOOM IN AUSTRALIA
Figure 4: Demand and supply in the mining industry
(As created by Author)
The above figure explains demand and supply scenario of mining industry. Initial
demand curve of the industry is given D1D1. The associated supply curve of the industry in
given as S1S1. In the phase of resources boom, demand for mineral increases. This shifts the
demand curve of minerals shifts rightward from D1D1 to D2D2 (McKenzie and Lee 2016). As a
result of increase in demand equilibrium in the industry shifts from E1 to E2. With increase in
demand, equilibrium price in the market increase to P2 and that of equilibrium quantity in the
market increases to Q2.
Australian economy
There is an overall positive impact on Australian economy because of the mining
boom. Because of mining boom there is an increase in per capita real disposable income.
Disposable income of household increased by 13 percent in 2013 compared to that without
the mining boom. The impact on Australian economy can be decomposed into an increase in
purchasing power and increase in volume of output. Higher commodity prices transformed
into a higher terms of trade in real terms. The favorable terms of trade increases real income
by 6 percent in the year 2013 (Tulip 2014). Because of the mining boom volume of goods and
services produced in the economy increases. Higher investment in the mining sector led to a
higher aggregate demand. Higher purchasing power increase consumption and other
components of aggregate demand. Increased capital stock also increases aggregate supply
of the economy. Because of mining boom real exchange rate increases by 44 percent. The
expansion of economic activity due to mining boom led to stronger employment lowering
unemployment rate. Decrease in unemployment rate and higher price of energy created an
upward pressure on inflation (Tyers and Walker 2019). The impact on overall economy can
be illustrated using the models of aggregate demand and aggregate supply.

8MINING INDUSTRY AND RESOURCE BOOM IN AUSTRALIA
Figure 5: Mining boom and effects on Australian economy
(As created by Author)
Increase in global demand for minerals increase export of resources. The favorable
terms of trade had a positive influence on trade balance. The higher export earnings increase
trade balance. Because of mining boom there was increase in mining investment adding to
aggregate investment. Higher purchasing power resulted from the higher GDP increase
consumption and other spending components. Because of increase in different components
of aggregate demand, demand expands causing aggregate demand curve to shift outward
(Guilmi, Gallegati and Landini 2017). The new aggregate demand curve is AD1. With an
increase in aggregate demand, real GDP increases along with an increase in price level.
Government policy
The analysis of resource boom in Australia has revealed that the mining boom has a
positive influence on the industry and the entire Australian economy. The resource boom
however ended after 2013. In order to stabilize the economy in the phase of resource boom
government of Australia took a restrictive fiscal policy. Government initiated rapid fiscal
consolidation for a period over 40 years. With a strong stimulus receive from the resource
boom and a state of balanced budget in the contemporary period, government decided to
take away a $50 billion which constitutes 3.5 percent of GDP of the economy (Gregory and
Sheehan 2019). The fiscal policy contraction helps government to gather fund in order to
spend during economic recession. For example, after the end of mining boom, the economy
may experience an unstable condition due to its dependency on mining sector. The restrictive
fiscal policy during resource boom thus helps the economy to recover any recessionary
pressure after the end of mining boom.

9MINING INDUSTRY AND RESOURCE BOOM IN AUSTRALIA
Conclusion
The analysis of mining industry of Australia suggests that the industry takes an
important position in the Australia economy. The industry makes significant contribution to
the aggregate output, employment generation and export earnings. The sector experienced a
period of rapid expansion since 2003. Increase in global commodity prices. Favorable terms
of trade and exchange rate all led to a rapid growth of the sector. There was a significant
growth in output of mining and associated business sector. Increased investment in mining
sector resulted in an increase in productivity and employment of the sector. The expansion of
mining industry had a spillover effect on the overall economy. Aggregate output expands,
higher purchasing power led to an increase in aggregate spending which further supports
output growth. Increase in export earnings and higher spending boosted aggregate demand
resulting in economic expansion. Government took a restrictive fiscal policy to stabilize the
economy.

10MINING INDUSTRY AND RESOURCE BOOM IN AUSTRALIA
List of References
Chapman, R., Plummer, P. and Tonts, M., 2015. The resource boom and socio-economic
well-being in Australian resource towns: a temporal and spatial analysis. Urban
Geography, 36(5), pp.629-653.
Eklund, E., 2015. Mining in Australia: an historical survey of industry–community
relationships. The Extractive Industries and Society, 2(1), pp.177-188.
Ellem, B. and Tonts, M., 2018. The global commodities boom and the reshaping of regional
economies: the Australian experience. Australian Geographer, 49(3), pp.383-395.
Gregory, B. and Sheehan, P. 2019. The Resources Boom and Macroeconomic Policy In
Australia. [online] Vu.edu.au. Available at:
https://www.vu.edu.au/sites/default/files/mcd/pdfs/AER No 1 Exec Summ.pdf [Accessed 18
Sep. 2019].
Guilmi, C.D., Gallegati, M. and Landini, S., 2017. Interactive Macroeconomics. Cambridge
Books.
ig.com 2019. Mining in Australia: Everything You Need to Know. [online] Available at:
https://www.ig.com/au/news-and-trade-ideas/shares-news/mining-in-australia-190102
[Accessed 18 Sep. 2019].
Jenner, K., Walker, A., Close, C. and Saunders, T., 2019. Mining investment beyond the
boom. RBA Bulletin, March, viewed, 6.
Marais, L., McKenzie, F.H., Deacon, L., Nel, E., van Rooyen, D. and Cloete, J., 2018. The
changing nature of mining towns: Reflections from Australia, Canada and South Africa. Land
use policy, 76, pp.779-788.

11MINING INDUSTRY AND RESOURCE BOOM IN AUSTRALIA
Marcos-Martinez, R., Measham, T.G. and Fleming-Munoz, D.A., 2019. Economic impacts of
early unconventional gas mining: Lessons from the coal seam gas industry in New South
Wales, Australia. Energy policy, 125, pp.338-346.
McKenzie, R.B. and Lee, D.R., 2016. Microeconomics for MBAs: The economic way of
thinking for managers. Cambridge University Press.
Nechyba, T., 2016. Microeconomics: an intuitive approach with calculus. Nelson Education.
Perry, M. and Rowe, J.E., 2015. Fly-in, fly-out, drive-in, drive-out: The Australian mining
boom and its impacts on the local economy. Local Economy, 30(1), pp.139-148.
Phillips, K. 2016. The mining boom that changed Australia. [online] Available at:
https://www.abc.net.au/radionational/programs/rearvision/the-mining-boom-that-changed-
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The Conversation.com 2015. Australia's 'five pillar economy': mining. [online] Available at:
https://theconversation.com/australias-five-pillar-economy-mining-40701 [Accessed 18 Sep.
2019].
Tulip, P.2014. The Effect of the Mining Boom on the Australian Economy [online] Available at:
https://www.rba.gov.au/publications/bulletin/2014/dec/pdf/bu-1214-3.pdf [Accessed 18 Sep.
2019].
Tyers, R. and Walker, A., 2016. Quantifying Australia's ‘Three‐Speed’Boom. Australian
Economic Review, 49(1), pp.20-43.