Shock and ore Down Under

Australia has avoided recession for 21 years, thanks most recently to a mining boom fed by China. So what happens as Chinese demand falters?

As most of the developed world floundered in the grip of a global slump four years ago, Australia was something of a poster child for growth. The resource-rich nation's mineral wealth kept it out of recession as it fed the ravenous Red Dragon's economic machine with iron ore, copper and coal.

Click HERE to view graphic

The country has not endured a recession for 21 years, and this year it will overtake struggling Spain as the world's 12th biggest economy, despite being outside the top 50 by population. But now China is sneezing, and Australia – and in particular its struggling cohort of mining giants – is in danger of coming down with a heavy cold.

Glencore's protracted dance with Xstrata to create the world's biggest mining business has stolen the recent headlines in the industry, but the on-off marriage comes at an unpropitious time for the sector, when a global collapse in commodity prices is leading the biggest players to shelve investment projects by the giant truckload. Mining – like Australia's once-vaunted cricket team – has been shorn of its brio and swagger.

The industry took another blow this week when Queensland announced plans to hike taxes on coal output from next month, which BHP Billiton warned would dent profits and potentially affect future investment plans. Although miners have been guaranteed no further rises for another 10 years, Rio Tinto said it was "shocked, surprised and very disappointed" by the increase, which was likely to make further developments in Queensland's Galilee Basin less viable in the short term.

The Queensland setback comes just weeks after BHP axed expansion plans for its huge £12bn Olympic Dam mine – a copper, gold and uranium deposit in the South Australian bush. With copper prices down 14 per cent in the past year and governments around the world pausing for breath on nuclear developments after Japan's Fukushima disaster, the investment numbers no longer add up. Instead less profitable mines are shutting and companies are shedding hundreds of jobs.

You don't have to look far for the culprit. China, which accounts for about a quarter of Australia's exports, spooked markets this week with a 2.6 per cent slump in imports during July, adding to signs that the once-breakneck growth of world's second biggest economy is cooling fast. Iron ore prices have been especially hammered, falling by a third in the past two months as China's steel makers drastically cut production. From running a record trade surplus with China, the outlook for the Lucky Country now suddenly looks a lot less certain, a fact reflected in the flagging share prices for a host of Australian miners listed in London.

Jonathan Jackson, at Killik, said: "For the past decade, the mining sector has been a secular play on the industrialisation and urbanisation of China. The sector has been one of the worst performers so far in 2012, falling by 9 per cent in absolute terms."

In late 2009 Australia was the first country in the developed world to begin raising interest rates when other central banks had – and still have – their feet firmly jammed on the monetary policy accelerator. But now the economy is slowing and the central bank is moving borrowing costs in the other direction. The economy grew just 0.6 per cent in the three months to June, decelerating from 1.4 per cent in the previous quarter.

And while business conditions improved in August as firms enjoyed a rebound in sales and profits, business confidence is taking a hit as miners fret about falling commodity prices. National Australia Bank's chief economist, Alan Oster, said: "Mining was the worst-affected industry, with the weakened outlook for commodity prices crunching confidence."

It isn't all gloom for Australia. There are still £175bn in committed projects in the pipeline and spending is not expected to peak until 2013 or even 2014. About two-thirds of these projects by value are in liquefied natural gas (LNG), which is nowhere as dependent on Chinese demand. Much of the LNG still in the ground has already been sold under long-term contracts – some stretching nearly 30 years ahead. But in the short term at least, Australia's economic fortunes look tied to China's faltering advance. And that spells an uncomfortable period ahead for the country and its beleaguered miners.

Start your day with The Independent, sign up for daily news emails
Voices
There will be a chance to bid for a rare example of the SAS Diary, collated by a former member of the regiment in the aftermath of World War II but only published – in a limited run of just 5,000 – in 2011
charity appealTime is running out to secure your favourite lot as our auction closes at 2pm tomorrow
Arts and Entertainment
X Factor winner Ben Haenow has scored his first Christmas number one
music
Arts and Entertainment
James May, Jeremy Clarkson and Richard Hammond in the Top Gear Patagonia Special
tv
News
File: James Woods attends the 52nd New York Film Festival at Walter Reade Theater on September 27, 2014
peopleActor was tweeting in wake of NYPD police shooting
PROMOTED VIDEO
News
Claudia Winkleman and co-host Tess Daly at the Strictly Come Dancing final
people
News
i100
Extras
indybest
News
peopleLiam Williams posted photo of himself dressed as Wilfried Bony
Sport
Martin Skrtel heads in the dramatic equaliser
SPORTLiverpool vs Arsenal match report: Bandaged Martin Skrtel heads home in the 97th-minute
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Arts and Entertainment
The Apprentice finalists Mark Wright and Bianca Miller
tvBut who should win The Apprentice?
News
The monkey made several attempts to revive his friend before he regained consciousness
video
Extras
indybest
News
Elton John and David Furnish will marry on 21 December 2014
peopleSinger posts pictures of nuptials throughout the day
Life and Style
A still from the 1939 film version of Margaret Mitchell's 'Gone with the Wind'
life
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Day In a Page

The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

The 12 ways of Christmas

We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
Birdwatching men have a lot in common with their feathered friends, new study shows

The male exhibits strange behaviour

A new study shows that birdwatching men have a lot in common with their feathered friends...
Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

Famous diaries: Christmas week in history

Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
From noble to narky, the fall of the open letter

From noble to narky, the fall of the open letter

The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

A Christmas ghost story by Alison Moore

The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'
Marian Keyes: The author on her pre-approved Christmas, true love's parking implications and living in the moment

Marian Keyes

The author on her pre-approved Christmas, true love's parking implications and living in the moment
Bill Granger recipes: Our chef creates an Italian-inspired fish feast for Christmas Eve

Bill Granger's Christmas Eve fish feast

Bill's Italian friends introduced him to the Roman Catholic custom of a lavish fish supper on Christmas Eve. Here, he gives the tradition his own spin…
Liverpool vs Arsenal: Brendan Rodgers is fighting for his reputation

Rodgers fights for his reputation

Liverpool manager tries to stay on his feet despite waves of criticism
Amir Khan: 'The Taliban can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'

Amir Khan attacks the Taliban

'They can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'
Michael Calvin: Sepp Blatter is my man of the year in sport. Bring on 2015, quick

Michael Calvin's Last Word

Sepp Blatter is my man of the year in sport. Bring on 2015, quick