Mining recovery reaches the coalface


Mining recovery reaches the coalface
  1. Mining recovery reaches the coalface
    theage.com.au
    The commodities mini-boom moves beyond share prices and macro data and is starting to be felt at ground level, NAB…
    Football

The mini-boom in commodity prices that has sparked a rally in mining shares is finally starting to show up in more than top-level data, NAB says.

"The early macroeconomic effects are becoming more apparent not only in the statistics but also on the ground," the bank's economics director David de Garis wrote in a note to clients.

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Signs are emerging that mining companies are slowly hiring again. Signs are emerging that mining companies are slowly hiring again. Photo: Glenn Hunt

Thanks to a resurgence in Chinese steel production as well as industry reforms in the country, the prices of key Australian commodities including iron ore, thermal coal and coking coal have surged over the past year. Iron ore prices alone have doubled over the past 12 months to about $US92 a tonne.

The rises contributed to the strong rebound in fourth quarter GDP, which rose at an annual pace of 2.4 per cent, while national income jumped 6.4 per cent courtesy of soaring terms of trade. Meanwhile, gains in mining stocks easily outpaced the broader market over the past 12 months as profits in the sector rebounded.

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Last years commodities rally came as a surprise to many. Last year's commodities rally came as a surprise to many. 

All that was starting to feed some improvement at ground level, Mr de Garis said, pointing to a mix of indicators such as job ads as well as anecdotal evidence.

While miners were still keeping costs under tight control – unlike at the peak of the last boom – "there is a measure of 'catch up' in spending by resource companies", he said.

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"Cutting corners, reducing maintenance and not spending according to what might be deemed best engineering practice now seems to have eased somewhat."

On top of that, mining services companies were reporting a pick up in enquiry rates for prospective new orders, while there was also anecdotal evidence that miners were again buying new equipment and increasing spending on repairs and maintenance.

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