Rising costs for super demand

A RECENT minerals industry survey reported unprecedented levels of industry growth but also pointed to the significance of rising costs. By Charlotte Dudley
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In situ measurement result with recovered bolt

Staff Reporter

The survey released this week found net profits have swelled 74% to $A11.8 billion and other key measures indicate increased performance. But while boom-time conditions keep rolling, industry is experiencing the escalating costs of doing business.

Participants of the survey – a joint initiative of the Minerals Council of Australia and PricewaterhouseCoopers – represent nearly 95% of Australia’s mineral production.

The MCA reported a moderate increase in mining, smelting and refining production but found that alongside rising international demand, mineral prices were up a whopping 70% from 2002-03 prices.

MCA chief executive Michael Hooke said: “We remain confident that we are a couple of years into a super cycle of demand, driven by the underlying structural adjustment in the global market.”

Super demand or not, the industry must face the issue of an increase in costs. The MCA found a 16% increase in total expenses, equating to $43 billion over the preceding year.

Rising costs include increases in labour costs (up by 13%), production and operating costs (up 12%) and a hefty 49% increase in royalties paid to state and territory governments.

Other cost increases were in port and rail charges, depreciation and amortisation costs and a rise in interest expenses.

Hooke said the industry faced a number of challenges in meeting demand including issues relating to skills shortages, export corridor infrastructure and the lack of nationally standardised project and safety regulations.

Such issues present a challenge but do not seem to have hampered the boom.

The survey results showed not only was there a 19% rise in resource industry employment, it also indicated strong growth capital expenditure on minerals production and on related infrastructure projects. The minerals sector appears to be going from strength to strength with the industry representing 20% of Australia’s total project expenditure.

Australian trade received a significant boost, to the tune of $92 billion (a 32% increase) and rising demand for Australian mineral product saw China and India emerge as significant markets. Sustained demand continues from the traditional export markets of Japan, Korea and Taiwan.