Analysis of the Australian Mining Industry: HI5003 Economics Report

This report provides a comprehensive analysis of the Australian mining industry, focusing on its historical background, market structure, and economic significance. It delves into the oligopolistic nature of the market, dominated by a few key players, and explores the impact of the resource boom from 2003 to 2016. The report also addresses the challenges faced by the industry in recent times, including declining yields and increasing extraction costs, and assesses their negative impact on the Australian economy. Furthermore, it examines government policies aimed at mitigating these issues and improving the industry's condition, offering insights into their effectiveness. The report concludes with an overview of the industry's current state and future prospects.

Running head: MINING INDUSTRY IN AUSTRALIA
Mining Industry in Australia
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Executive Summary
This report pertains to the mining industry in Australia with focus on the resource boom of
2003-2016 and issues it faced in the recent times. The report discusses the background of the
industry and its importance in the economy of Australia. The structure of market of the
mining industry is of oligopoly structure since the few number of companies dominates the
mining industry in Australia. The resource boom that occurred in the mining industry played
a crucial role in the growth of the mining industry. The issues of the mining industry have
been covered in the report. The impact of the issues discussed is negative on the economy of
Australia. The analysis of the effect has been done with emphasis on the policies that corrects
the negative impact of the mining industry issues and helps to improve the condition of the
industry.

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Table of Contents
Introduction................................................................................................................................3
Background of the Mining Industry in Australia.......................................................................3
Market structure of the Mining Industry....................................................................................6
Resource boom in Mining industry............................................................................................7
Mining industry associated issues in Australia..........................................................................8
Impact of issues of mining industry on the Australian economy...............................................9
Government Policies..................................................................................................................9
Conclusion................................................................................................................................10
References................................................................................................................................11

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Introduction
Australia is an advanced economy and the industries of the country played pivotal
role behind its growth. The industries that are significant in Australia are banking, energy,
agricultural, property and mining industry. In this report, the emphasis is given on mining
industry. Impression of mining industry on the economy Australia is substantially large. Data
show that around 0.1 % of the total are is being distributed to conduct mining activities in
Australia. Apart from that, 0.7 % of land in Australia is under lease for mining activities in
and 0.02 % of land is under direct influence of mining industry. Australia is rich in different
types of minerals such as gold, aluminium, zinc, diamond, silver, zinc, natural gas, uranium,
petrol, nickel, cooper and coal. This report discusses and gives the overview of the mining
industry in Australia with emphasis on its market structure. The mining industry is among the
biggest contributors in GDP of Australia and any issue in the mining industry would affect
the economy of Australia. Thus, the report discusses the associated concerns of the mining
industry in Australia and their impact on the country. The report also focusses on the
resource boom in the mining industry along with its effect on the industry and thereby on the
economy of the country. After discussing the issues, the report speaks about the government
policy of intervention and evaluates the degree of effectiveness of the policy. Therefore, the
report on the mining industry in Australia mainly focusses on the challenges in the mining
industry.
Background of the Mining Industry in Australia
The mining industry in Australia is one of the oldest industry in the country. The
industry started during the period of gold rush inn 1850’s. The industry is one of the key
contributor of the economy of the country with 7 % share in the GDP (Globaltenders,com
2019). The industry is mainly concentrated in the export sector as around 60 % of the

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production of the mining industry is exported to other countries (Export.gov 2019). Data
show that the average growth rate of the mining industry in the last ten years has grew
annually by 6.5 %. Export concentration of the mining industry has made it the highest earner
for Australia in the export sector. The mining industry of Australia is among the top
producers of nickel, zinc, iron ore, gold, lead and coal in the world and the industry is the
largest producer of uranium in the world. Thus, it can be estimated how large the mining
industry in Australia is. In terms of mining industry, the rank of Australia is four after Russia,
China and the United States. Australia leads export market of iron ore in the world. In 2018,
the total value of mining export was $248 billion, which was 72 % of the total exports of
goods in Australia (Global Mining Review 2019). Out of the total exports value the
contribution of coal was $66 billion and is highest among all the goods that Australia exports.
Figure 1: Contribution of mining industry to export and employment
(Source: Static.treasury.gov.au 2018)

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The mining industry in Australia is not only a important contributor in the GDP of the
country but also contribute in employment of the economy in a significant way. Around 0.2
million people are employed in the mining industry in Australia and thus the industry is
regarded among one of the major and largest employer of the country. The contribution of
mining industry employment is significantly wide spread as the industry employs almost
from every state of the country. Thus, in every state of Australia, people are involved in
works related to mining industry. The mining industry has grew strongly during the 9-year
phase between 2005 and 2013; throughout this period, investment made in the mining
industry was noticeably large. Discovery of new mines and expansion of existing mines have
supported the growth of concerned industry.
Figure 2: Monthly
growth percentage of mining and ASX 200
(Source: Pwc.com.au 2017)
The mining industry in Australia experienced a decline during first quarter in 2015.
However, the industry recovered from the adverse situation from the second quarter of 2015,
it is evident from the growth in ASX200. The improvement in the condition in the mining
industry was due to the contribution made by gold, iron ore and coal mining. As per data,

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mining industry in Australia generated net profit of $1.6 billion in 2017 (CFMEU Mining and
Energy, 2018). The equipment that Australian mining industry uses are mostly imported from
the United States, Japan, China and Germany. Thus, for mining equipment requirements
Australia is dependent on other countries. The mining industry in Australia, however, does
not contain many mining companies and is dominated by the companies namely Rio Tinto,
BHP Billiton, Evolution Mining, UGM Australia and Barrick Australia Pacific among the
major ones.
Market structure of the Mining Industry
The mining industry in Australia is served by limited numbers of producers and
among them the industry is dominated by fewer number of corporations such as Rio Tinto,
BHP Billiton and UGM Australia. Thus, from microeconomic theory it can be inferred that
the market structure of Australian mining industry is oligopoly on nature (Tirole 2014).
Under this market structure, the producers are able to choose their output and thus the free
market forces do not determine the supply, rather it depends on the choice of the producers
and the supply is lower than the total market demand. Hence, in this industry is price stays
above the market price in most of the cases. Moreover, establishing a mining facility requires
huge amount of investment and it makes the entry to the industry expensive. Similarly, if the
a existing firm wishes to leave the industry it has to sacrifice the investment made to establish
the facility since the entire investment goes into sunk cost Thus, there is significant entry exit
barriers present in the industry (Burke and van Stel 2014). For example, to establish an iron
ore mine with capacity of one million tonnes a company must accrue $1 billion as cost, which
is generated by the waste created during the process of extraction of iron ore. Therefore, in
case of small companies, accruing such a huge amount as cost for establishing mining facility
is completely difficult and if after making the investment and establishing the facility the
sales of mining industry, falls then the small companies would probably go bankrupt and will

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be forced to leave from the market. Thus, the oligopoly market structure of the mining
industry provides the big companies to keep their dominance in the market. The other
features of this market structure are possibility of supernormal profit if the dominant
companies collude with each other and charge higher price than the market price (Radi 2017).
After collusion, the market takes the structure that is close to the monopoly market and
thereby the loss in consumer surplus reaches high and the social welfare loss occur too in the
form of deadweight loss (Colombo 2016). However, the oligopoly market structure of the
industry is going to persist and the government is not also intended to convert the market
structure into a competitive one.
Resource boom in Mining industry
The resource boom or the gold rush that occurred in 1850s is considered as the most
significant increase in the resource in the history. The resource boom that started in 2003 and
lasted for a decade in Australia is has been considered one of the most significant resource
boom after the gold rush. In 2003, price of commodities such as coal and iron ore increased
significantly. The rise in price for the commodities is due the increased demand generated by
China one of the major importers and other countries from Asia that imports mining products
from Australia. During this period, the rise in demand was significant and most importantly
the prices of the mining products rose by more than 100%. The price hike had been observed
in the case of natural gas, iron ore, thermal coal and metallurgical commodities, since these
are the main commodities demand for which was the highest among all. The price of iron ore
rose from $20 per tonne to $170 a tonne, on the other hand the price of thermal coal rose
from $50 a tonnes top around $180 a tonne. Before the resource boom of 2003, the boom
during the Fraser years encourages the investment in the mining sector to around 3.5% of the
GDP. However, the resource boom of the 2003 went above the all the past resource booms
and is comparable to the resource boom during the period of gold rush. The investment made

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in the mining industry during this period was around 8.5% of the GDP (Abc.net.au 2016).
From the resource boom of the 2003-2016, the mining industry has benefitted significantly.
The mining companies and the people employed in the mining industry had experienced the
benefit of the boom mostly. The main benefit that the Australian economy gained from the
resource boom was that it helped the economy to deal with the adverse effect of the financial
crisis and successfully escaped from it. The rise in income of the employees of the mining
industry has increased the demand for other goods in the economy and because of the
induced effect, the income of the other sectors increased. Therefore, the income of the
Australian economy increased as a whole. Therefore, the purchasing power of the country
increases to very high value. The per capita income of the country increased by 13% during
this period (rba.gov.au 2014). The unemployment was lower during this boom period and this
has an effect on the inflation rate. More income and more employment has increased the
consumption of the country and thus increased demand increases the prices of the goods and
services and thus inflation rises. The manufacturing companies has also benefitted from the
boom. The major industries that gained from the mining boom were electricity, construction
industries, distribution services, gas and water.
Mining industry associated issues in Australia
The mining industry in Australia is among the major industries that contribute in the
GDP of the country significantly. The mining industry might have gained hugely from the
resource boom of the 2003-2016, but in the recent times, the industry is suffering from
difficulties. The difficulties mainly arose from organizational, economical and natural causes.
Discovery of new mining lands has been low for the past few years and along with that yield
from the existing mines are decreasing. The existing mines are also getting deeper and thus
cost of extraction is increasing too. Therefore, the mining industry is contracting with time,
this contraction in the industry has reduced the interest of people in the industry regarding

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employment, and thus the industry is struggling to get enough employees in the recent times.
The resource boom of the mining industry was driven by the demands from the foreign
countries especially from China. During the early 2000s, the construction sector in the
emerging industry was at boom and thus the demand for mining products was at high and that
boosted the demand for the mining products from Australia. However, the demand has
gradually decreased and the price of mining products reduced, but the cost of extraction has
increased (Ibisworld.com 2019). Thus, in the future, the industry will face more severe
challenges and its market will shrink more. Therefore, a downfall of the mining industry in
Australia will have a significant impact on the economy of the country.
Impact of issues of mining industry on the Australian economy
Mining industry is one of the major pillars of the Australian economy and any
negative impact happenings in the mining industry would hurt the economy of Australia as
well. A large number of people in Australia depend on the mining industry for income. It is
evident from the data that a large portion of the export sector is also dependent on the mining
industry. Thus, a negative shock to the mining industry would hurt the economy of Australia
badly. The income of the individuals will decline and thereby the standard of living falls too.
The consumption will decline and thereby the total output of the economy decreases as well.
On the other hand, the manufacturing industries that depend on the mining industry will
suffer due to the induced effect. Hence, a poor performing mining industry will give rise to
low performing Australian economy that is struck with low income, low economic output and
unemployment (ABC News 2016). Therefore, the issues that are affecting the mining
industry should be dealt with effective policies that can only be implement through
government intervention.

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Government Policies
The recovery of the mining industry in Australia depends on the policy intervention
made by the government. The polices that government may take to improve the mining
industry condition are easing the licensing policy for establishing new mining facilities and
excavation for discovery of new mining fields, allowing more imported technology that
improves the extraction procedure and encouraging construction industry that drives the
demand for mining products.
Easy licensing policy will allow new firms to enter the industry and more discovery of
new mining fields will reduce the overall cost of extraction. Import of new technologies for
mining will reduce the cost and improve the productivity of the mining industries, finally the
growth in the construction industry will increase the demand for mining products, and
thereby the mining industry will flourish more (Mining.com 2018). Therefore, the policies
will improve the mining industry and Australian economy as a whole.
Conclusion
The discussion on mining industry of Australia has put forward the notion that the
industry is of utmost importance to the Australian economy and is one of the pillars of the
economy as well. It is evident that the contribution of the mining industry in the GDP of
Australia and its share in the earning from export sector that decline in the performance of the
mining industry would affect the economy of the country negatively. The resource boom
during 2003-2016 has played a significant role in growth of the mining industry and it
supported Australian economy to sustain the financial crisis of 2008. The mining industry,
however, has seen a decline due to fall in export demand, stringent licensing policy by the
government against excavation for new mining fields and lack of potential employees and all
these adversities in the mining industry has adversely impacted the Australian economy.
Therefore, the policy intervention by the government of Australia would improve the

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condition of the economy of Australia as the polices would have direct impact on the mining
industry and thereby the economy.

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References
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Ibisworld.com (2019). China’s GDP Decline To Affect Various Australian Industries |
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