HSBC doesn’t see the financial jitters in other parts of the world affecting Australia’s mega LNG projects, or the massive expansions in iron ore and coal.
“While it is hard to say anything is truly ‘unstoppable’, we think that the mining investment boom comes pretty close,” the report says.
Our mining investment boom is “baked in”, HSBC says, partly because most projects are large, multi-year efforts that are hard to wind back and also because the projects are being run by mega-corporations “that have sound balance sheets and are therefore less susceptible to funding concerns”
Furthermore, listed companies in the minerals sector bounced back from the GFC – aided by strong commodity prices – and were able to deleverage in 2009-10, the report says, meaning much of the recent investments have been funded from retained earnings.
“Finally, and more fundamentally, long-term demand from Asia for Australia’s energy exports is expected to remain elevated,” HSBC says.
While worldwide economic growth will slow to just 0.6% in 2012, emerging economies will grow at a steady 5.3%.
“Most importantly for Australia, we expect that China will still manage a ‘soft landing’, as Chinese authorities have already started to loosen the monetary taps and started to ease fiscal policy,” HSBC says.
The report says Australian iron ore and coal are largely used by Asian customers to make steel and energy for domestic markets, rather than meeting foreign demand.
The tight world credit market is of less concern to Australia because the credit cycle has not been driving our growth, HSBC says.
“While weak credit growth would typically be a sign of weaker economic conditions, the Australian economy is being driven by a sector that does not borrow much from local banks – the mining industry.”