Outside the market for money, profits in the mining sector will carry the Australian economy, according to Standard and Poor’s. S&P credit analyst Kyran Curry writes that “Global economic growth has brought significant demand for Australia’s iron, coal, alumina and liquefied natural gas (LNG), and there are no signs of cooling off soon: the pace of development in China alone suggests considerable potential for Australia’s export growth.”
Although they’ve doubled as a result of higher prices, mining profits are only 5.5% of GDP, lower, we suspect, than financial sector profits (we’re checking on this and will report back the findings tomorrow.) Investment in capacity expansion by the mining industry hasn’t yet led to an increase in export volumes. And when it does, there’s no guarantee profits will increase on increased export volumes. Why?
Export volumes may increase in the face of flat or even slightly lower commodity prices. The net result will be dollar volume growth. But profits? You’ll have to dig deeper to find those. We’re looking at mid-tier mining firms or mining service companies.
The Daily Reckoning Australia