Confidence surges in the mining sector

Confidence surges in the mining sector

Confidence in the mining sector has surged to its highest levels in two and half years as global conditions improve.

Australia’s midsize mining companies are more confident than at any time in the last two and a half years, according to the latest Commonwealth Bank Future Business Index.

A broad-based measure of sentiment across nine key industries, the Index is based on organisations’ own estimates of future business conditions, revenue and risk. In the March 2014 quarter, the Index for the Mining industry jumped 21 points to 28 - its highest level since the Index began in September 2011.

The good news doesn’t end there. While the proportion of miners who expect revenues to rise has remained largely steady at 55%, around the same number now say profits will also increase, suggesting stringent cost controls are bearing fruit. And Mining companies are also better prepared for future volatility than three months ago, with an overwhelming 94% saying they have well developed risk management plans in place.

Turning up the volume

The Index reflects a general sense of optimism that global economic conditions will continue to support growth. Compared to their peers in other industries, miners were unusually likely to predict a positive impact from conditions in China (cited by 46% of Mining companies), Asia (41%), North America (38%) and Europe (34%).

Admittedly, recent Chinese data has been softer than the industry might like, with industrial production growing at its slowest rate in five years. Nonetheless, the longer term Chinese growth story remains sound. According to the Bureau of Resources and Energy Economics (BREE), Chinese iron ore imports were up 33% year on year in January and 9% in February, despite a short month and the New Year holiday.

Meanwhile, the developed economies continue to gather momentum. That’s helped to support iron ore spot prices almost double the big miners’ production costs of around $60 a tonne, after they bounced back from the so-called ‘flash crash’ in March.

The switch from investment to production has also continued at breakneck pace, with a string of producers posting record production numbers. BREE now predicts that iron ore exports will be up 19% this year to an impressive 687 million tonnes. Asked to name their top challenges over the next six months, miners were most likely to say their biggest problem was managing growth, cited by 26% of companies - a great problem to have.

Get more industry insights, download the latest Future Business Index report. To find out how Commonwealth Bank can help your business, contact your Relationship Executive or call us on 1800 019 910.