The mining boom is somewhat on the way out.
One only has to look at the job losses in the coal mining industry to see the effects of low prices, high costs, increased supply and reduced demand.
The thing that I think will decide if we have a minor impact versus major impact is dependent on China.
If we have a soft landing in China and demand is curtailed slowly, then I think impacts on Australia will be minimal. A soft landing would allow time to help further develop and build a more diverse economy that has national strength's in more than one area aside from minerals and energy resources.
A soft landing would mean gradual decline in property prices in mining only towns, which would lead to a more orderly exit for investors switching money to other assets or areas.
A hard landing in China, on the other hand could potentially present a much larger and widespread impact on both business and property.
A hard landing could result in immediate value write downs for properties in mining towns, resulting in lower rents, lower serviceability and increased sales. The last thing we would want is a big rush for the exits for people holding property in mining towns.
Although same as in the share markets, greed and fear help to drive prices. If fear spreads on the property front in these areas there could be a flood of properties onto the open market.
I think if that happens this would hurt regional areas, but capital and metropolitan areas should/would be fairly well insulated. Especially if there is a big switch from regional to city based property.
Depending on timeframes and the extent to which this could impact on regional properties, could present opportunities for under valued areas.
All a bunch of what if scenario's, but I for one would not want to be holding a large property portfolio in mining towns when the music stops.
And this is coming from someone who works in mining!
I think best case scenario, if mining boom is truly over, then we see a gradual decline in values in mining specific areas. Would lead to less pronounced market fluctuations and would limit potential downside in these regions.
And having said all that, I think commodity prices will stay above historical averages for the foreseeable future.
For most base metals (copper, zinc, lead, nickel), precious metals (gold, silver) we have been seeing a trend where although prices have been driven upward in a commodity super cycle, the cash costs for producing have also been rising.
This is driven by a number of factors, wages growth, inflation, but most importantly is declining grades of our super size elephant mines.
Basically, we have taken all the easy pickings from these mines, and the ore bodies that are left are lower quality, meaning we have to run production rates at higher percentages to return the same output!
The end result is that high commodity prices are here to stay, otherwise all the big producers will eventually stop production if they aren't making money. So I think the super cycle is probably drawing to a close, but we will still see higher demand than compared to historical averages.
Mining will be stronger for longer, but we are in the bottom, or at least down trend in a metals market cyclical movement, which may last 1-2 years? Who knows.
