Chinese Imports

[Graemsay]

There's a piece at FT Alphaville today about the source of imports into China.

What caught my eye was this graph.

There has been talk about how a Chinese slowdown would affect Australia, and this illustrates it quite clearly.

 

[buzzlightyear]

Given the benefits of the mining boom are predominantly in wa & qld, then speaking from a parochial Victorian view, a slow down would be welcome. Lower dollar would be a welcome eventuality and maybe the RBA then believing interest rates need to fall for the economy to start growing at trend.

 

[Ocean Architect]

I think the situation is dangerous because not only do the Chinese buy massive amounts of resources from us, but they have been stockpiling those resources. There are literally mountains of ore sitting in China for later use.

If I were boss hog king lord of Australia, I would be building factories and refineries like a lunatic to hedge against that eventuality.

 

[Graemsay]

I've just read an article on The Age website that is a real Doom and Gloom piece, and ties in with what Ocean Architect said. Namely that the resources boom is likely to be short lived, and it's hollowing out other sectors of the economy.

It also fits in with an earlier piece about job losses in the east being counterbalanced by gains in the west.

I'd agree with Ocean Architect's suggestions too as a hedge against a resources bust.

 

[Deltaberry]

If I were boss hog king lord of Australia, I would be building factories and refineries like a lunatic to hedge against that eventuality.

Why? So we can make more reinforced materials because we have such a massive, booming construction industry?

Oh and not to mention our ultra super low labour costs which will underpin the downstream end, just as we did to our aluminium and alumina industry.

 

[Aaron Sice]

I think the situation is dangerous because not only do the Chinese buy massive amounts of resources from us, but they have been stockpiling those resources. There are literally mountains of ore sitting in China for later use.

If I were boss hog king lord of Australia, I would be building factories and refineries like a lunatic to hedge against that eventuality.

but...but....your carbon output!

 

[Ausprop]

I've just read an article on The Age website that is a real Doom and Gloom piece, and ties in with what Ocean Architect said. Namely that the resources boom is likely to be short lived, and it's hollowing out other sectors of the economy.

It also fits in with an earlier piece about job losses in the east being counterbalanced by gains in the west.

I'd agree with Ocean Architect's suggestions too as a hedge against a resources bust.

talk about drawing conclusions froma bunch of unrelated issues. It lost the plot completely as soon as it drew a comparison between speculation on irish housing and aussie commodity exports.

 

[Ausprop]

I also think the high dollar is creating a better level of manufacturing exporter - flush out the low value dross and create advanced exports. Do you think if the iphone was $2000 they wouldn't sell?

 

[Ocean Architect]

Why? So we can make more reinforced materials because we have such a massive, booming construction industry?

Oh and not to mention our ultra super low labour costs which will underpin the downstream end, just as we did to our aluminium and alumina industry.

As I have said in other threads, a healthy economy is a well balanced one, that is as self sufficient domestically as possible.

Any idiot can understand that the production process is

1: obtain raw materials
2: refine raw materials
3: manufacture products
4: consume products

Australia presently does 1 and 4. We rely on places like China and Japan to do 2 and 3.

If at any point something happens in the countries that do 2 and 3, it affects our ability to do 1 and 4, which hits the economy hard, pumping unemployment. It simply isn't sensible for Australians to sit around unemployed while we wait for other countries to please please please buy our raw materials and send us back polished goods, when we can do that ourselves with all of those unemployed people.

We call ourselves the clever country, but this kind of dependence on other countries in a fragile global market without domestic manufacturing ability doesn't sound terribly clever to me.

 

[Ocean Architect]

but...but....your carbon output!

You had to say the C word, didn't you.

Germany is doing a giant boomerang with the carbon tax issue, and here we are in Australia where the boomerang was invented and we're all in with this carbon malarky.

 

[Ausprop]

You had to say the C word, didn't you.

Germany is doing a giant boomerang with the carbon tax issue, and here we are in Australia where the boomerang was invented and we're all in with this carbon malarky.

to reduce carbon you need to reduce consumption AKA reduce your standard of living (or someone elses). It is not defendable to simply offshore your production. People want to have it both ways - it can't happen.

 

[Tehanu]

Actually it's worse than it seems at first glance. Why? Take a look at what Australia's biggest export markets are.

http://www.daff.gov.au/abares/publi...GZmlkJTNEcGVfYWJhcmVzOTkwMDE3NjIueG1sJmFsbD0x

The largest export markets for Australian metallurgical coal (high quality) in 2009-10 were:

- Japan - 26.25 Mt
- India - 24.51 Mt
- China - 15.52 Mt
- Korea - 6.89 Mt
- Taiwan - 3.49 Mt

The largest export markets for Australian thermal coal in 2009-10 were:

- Japan - 66.41 Mt
- Korea - 24.84 Mt
- Taiwan - 19.55 Mt
- China - 13.91 Mt

The largest export markets for Australian iron ore in 2009-10 were:

- China - 267 Mt
- Japan - 59 Mt
- Korea - 28 Mt
- Taiwan - 8 Mt

Note that all of these countries are in the list of countries most dependent on exporting to China. Japan, Korea and Taiwan are actually at the top of this list.

Which means that a Chinese slowdown would not only cause a slow-down in Chinese demand for Australian commodities, it will also cause a slow-down in Japanese, Korean and Taiwanese demand for Australian coal and iron ore.

 

[lizzie]

So why would the thermal coal slow down? This is for internal consumption for electricity and heating.

Perhaps I am naive - but I also believe that we are part of a global market. Exporting our manufacturing is part of the global market. But it does mean we have to be smart and implement a replacement sector for that manufacturing. Something other than digging holes in the ground.

Whether it's quality food - new technology - advanced health/research ... I am sure the list can be endless but will require an adjustment in thinking about how we do things.

Despite some ideals - you cannot hold back progress

 

[Ergophobia]

1: obtain raw materials
2: refine raw materials
3: manufacture products
4: consume products

Australia presently does 1 and 4. We rely on places like China and Japan to do 2 and 3.

I agree 100%

Self sufficiency should be an issue of national security

Localised production would also reduce pollution by cutting down on transport.

The current system must look completely absurd to the aliens looking down on our planet.

They dig it up over there, transport it half way across the world only to send it back again... all for this thing they have invented called "money".

 

[Tehanu]

Electricity use is related to economic activity. Economic slowdown -> lower electricity use.

Possibly contradicting myself though - What it looks like is volumes of thermal coal exports to Asia did not go down during the GFC. Thermal coal exports to Europe plunged though. The total thermal coal export volumes did go down slightly though. Then again maybe that's not a contradiction as Asia didn't really experience the GFC.

The total value of thermal coal exports plunged (from over $17000m in 2008-9 to $12000m to 2009-10) not because of volumes but because unit prices went down substantially.
What it looks like is that export prices for coal and iron ore are much more volatile than export volumes. So it is very possible for volumes to not change too much but prices to plunge or soar. Which means that if volumes do plunge it will really massacre prices.

 

[Deltaberry]

Given the benefits of the mining boom are predominantly in wa & qld, then speaking from a parochial Victorian view, a slow down would be welcome. Lower dollar would be a welcome eventuality and maybe the RBA then believing interest rates need to fall for the economy to start growing at trend.

There are a lot of Victorians who benefit from the mining boom. And this money is already flowing through the veins of the Victorian economy including through to property prices.

Case in point, if there was no mining boom I probably won't be paid what I am and won't be buying any more for now.

 

[Deltaberry]

We call ourselves the clever country, but this kind of dependence on other countries in a fragile global market without domestic manufacturing ability doesn't sound terribly clever to me.

People have tried what you said.

Alumina refineries, aluminium smelters, fertiliser plantations etc. Many are going bust and closing down. Oswal any way? Point Henry?

Australia's comparative advantage is not in domestic manufacturing because of high labour costs. Any government trying to go back to this old model is making a serious mistake.

We should be channelling our resources towards high value-add, intelligence-intensive industries such as bio-tech, IT, education, healthcare etc. And we should be doing this fast before China moves on to this phase and outpaces Australia in this respect.

 

[Deltaberry]

Electricity use is related to economic activity. Economic slowdown -> lower electricity use.

Possibly contradicting myself though - What it looks like is volumes of thermal coal exports to Asia did not go down during the GFC. Thermal coal exports to Europe plunged though. The total thermal coal export volumes did go down slightly though. Then again maybe that's not a contradiction as Asia didn't really experience the GFC.

The total value of thermal coal exports plunged (from over $17000m in 2008-9 to $12000m to 2009-10) not because of volumes but because unit prices went down substantially.
What it looks like is that export prices for coal and iron ore are much more volatile than export volumes. So it is very possible for volumes to not change too much but prices to plunge or soar. Which means that if volumes do plunge it will really massacre prices.

A Chinese slowdown is VERY bad for Australia.

I have no idea why some people are debating this.

 

[lizzie]

Australia's comparative advantage is not in domestic manufacturing because of high labour costs. Any government trying to go back to this old model is making a serious mistake.

We should be channelling our resources towards high value-add, intelligence-intensive industries such as bio-tech, IT, education, healthcare etc. And we should be doing this fast before China moves on to this phase and outpaces Australia in this respect.

Totally agree - which makes me grit my teeth every time the government pours another few billion into a failing car manufacturing market, that is producing cars that no one wants to buy.

 

[Tehanu]

The big miners are being pressured by shareholders to cut their investment spending because of weakening commodity prices and cost blow-outs (labour, material and power):

http://www.reuters.com/article/2012/04/12/miners-agms-idUSL6E8FC7I320120412

LONDON//MELBOURNE - Rio Tinto and other big miners preparing to meet shareholders over the coming weeks will face tough questions over ever larger and more capital intensive projects at a time when robust commodity prices have cooled.

The top mining stocks have had a troubled few weeks, with the UK-listed sector sliding by almost a fifth since the start of February and valuations languishing at almost half their 10-year average, hit by concerns over cooling demand and the cost of an organic growth pipeline totalling some $180 billion.

"Shareholders are desperately concerned about capex inflation. Capex inflation without a concomitant increase in the underlying price of the commodity is not good and at the moment we are seeing commodity prices flat to down," analyst Des Kilalea at RBC Capital in London said.

On the bright side of things, management have decided to slow down on projects outside of Australia first.

However, analysts say both Rio and larger rival BHP Billiton have signalled they are listening to shareholder concerns over capex and cost escalation and could phase or stage their spending -- for BHP that would mostly affect its U.S. shale gas plans, while for Rio it could mean slower growth in Simandou, Guinea while its focuses on Australian iron ore.

I'm guessing though that if commodity prices fall even more, especially if costs blow out at the same time, the Australian projects could be targeted too.

With Julia's luck it will probably be just as the mining tax starts.