Due to the gloom that the Australian mining industry is currently experiencing, the sales of direct mining supplies have been hit hard. Gone are the days when the mining industry was seen as one of the pillars of the Australian economy. Aside from the mining companies and workers who have been impacted by this crisis, mining supply businesses have also been affected.
This is because the demand for high-tech equipment used on mining sites has diminished tremendously. Aside from this, there are several factors that people believe have significantly contributed to the mining supply industry’s downfall.
Currency and Price Volatility
Equity markets today are steadily becoming sensitive to any sort of macroeconomic news. For many mining companies, an increase in commodity prices does not fully impact their share prices whereas their decreases do. One of the leading examples of this phenomenon is the erosion of gold prices.
Because of this, mining companies do not have the capability to withstand any sort of price shock. It also affects their income. Due to this, they are forced to cut down on ordering valuable equipment from direct mining suppliers. At the same time, mining supply companies have been impacted by this crisis due to a decrease in the demand for their products.
Increasing Cost of Doing Business
Another factor that could affect the demand for direct mining supplies is the increasing cost of doing business in the mining sector in Australia. The Australian mining industry is only getting more expensive. This is because costs are steadily being influenced by the high cost of compliance and labor along with the introduction of the mining and carbon taxes.
Because of this scenario, many companies are having second thoughts about whether to enter the Australian mining industry. Without firms coming into the market, mining supply companies are hit hard because they do not have any new customers.
Quality Over Quantity of Projects
Schedule slippage and overrun costs in Australian mining projects do not just worry lenders. They also attract media attention and aggravate shareholders. This year, a lot of Australian mining analysts believe that they will see a growing number of mining companies being forced to evaluate existing projects rather than financing speculative long-term projects.
Shutting down these projects is a sure way to affect every mining firm’s future profitability. The effects have also been felt in previous years. According to Deloitte Access Economics, resource value in shares of every project in the country’s planning pipeline fell 56 percent to 40 percent in one year alone.
At the same time, only 25 percent of mining companies are planning to make any sort of major capital investments in the near future. Because of this, the demand for direct mining supplies will be greatly affected. It will also create a great reduction in the annual profits for Australian mining supply firms.
Another factor that could indirectly impact Australian mining supply companies is the labor crisis that is currently plaguing the industry. Today, it still remains at unrelenting levels where it is expected to stay for a while. At the same time, Australia’s mining council predicts the need for a total of 86,000 skilled mine workers and mining professionals by 2020.
Although this problem can be overcome with wage hikes, this can prove to be unsustainable in the long run for companies that do not have the capability to increase worker salaries annually. Because of a shortage of labor in the mining industry, Australian firms cannot expand their operations.
A reduction in operations also affects the industrial needs of companies. One of those sectors that will be negatively affected is the Australian mining supply industry. This is because they will experience a reduction in the demand for their equipment even if mining companies have the money to purchase it due to an absence of highly-trained personnel.
Resource nationalism is still the primary risk that is facing metal and mining companies as the Australian government goes beyond taxation in looking for a much greater share of industry profits. With this, a wave of requirements have been introduced that include export levies and limits on foreign ownership.
In short, the uncertainty caused by sudden changes in government policies cannot be understated. This is because it greatly hampers mining projects around Australia with a number of investments being withdrawn altogether due to the changed reward and risk options.
A delayed mining project does not only affect mining companies. It also has an impact on the businesses that provide them with direct mining supplies as firms are forced to delay the acquisition of this equipment. At the same time, a withdrawn investment means a lost opportunity for mining supply companies to obtain new clients.
All of these factors have a direct effect on the mining industry. This should not be ignored as the Australian economy is set to lose if this is allowed to continue. The survival of the mining sector and the people who provide companies with the equipment that they need now hangs heavily on the Australian government’s approach in handling this situation.
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