Nobody saw this boom coming, but its big news for property.
The mainstream media is surprisingly quiet about it, but here’s a secret:
The mining boom is back on.
I know, right? I would have thought this would be front-page news. Perhaps they’re still feeling silly about pinning all their hopes on a ‘century-long’ boom that only ended up lasting 5 years.
But the truth of it is, commodities are booming again, and Australia has suddenly found itself with an unexpected windfall.
Here’s a few charts so you can see what I mean:
First up, export volumes and values are cruising on to record highs, with projections for the coming two years looking bumper:
And this lift is broadly based across our commodity exports. First there’s iron ore, where prices are coming back in a serious way.
Then there’s coal prices, where both coking and thermal coal prices are back at record levels:
At the same time, Australian LNG exports are going absolutely gang-busters:
That LNG is one to watch. There’s ample capacity now around the world right now, but many analysts reckon there’s a massive shortage looming in the market, which will drive prices through the roof:
Part of the reason we’ve been blindsided by this is because all eyes were on China. But China is only part of the story.
In the case of coal for example, the big story is really India, and surging demand there:
Now I’m not saying the mining boom is playing out again, and it’s time to go and buy property in a regional mining town like it was 2010 all over again.
But this does have real implications for the Australian economy. It’s going to be a major lift.
And not least of all through the channel of the public purse, where government receipts have had an unexpected boost, and the budget is surprisingly rushing back towards surplus.
From the AFR:
The federal government could return the budget to balance this financial year, 12 months earlier than forecast, but that would require spending restraint ahead of the federal election, leading budget economist Chris Richardson said.
Finance Minister Mathias Cormann confirmed on Sunday that the budget bottom line for the first two months of this financial year – to the end of August – was already $6.6 billion better than expected.
…The deficit for the 12 months to the end of August was $8.9 billion, well ahead of the $14.5 billion deficit forecast for this financial year in the May budget. The budget forecast a return to balance of $2.2 billion for next year, 2019-20.
The key take-away there is “On track for a surplus… but that would require spending restraint.”
Oh yeah. Politicians are famous for that.
My bet is that with an election round the corner, both parties are going to plough this unexpected surplus straight into the pork-barrel. Whatever you think of that, it’s going to be a boost for the economy in the short term.
I also think this puts a bit of safety net under house prices.
House prices are under pressure right now, and it seems that we’re in the process of an ‘orderly’ consolidation.
But if something were to happen, which it does from time to time, then there is a small chance that this consolidation could get “messy”.
But if that were to happen, then we could take comfort from the fact that the government will have something of a war-chest to stop things getting too messy.
No government has ever been shy about throwing money at the housing sector – whether its first home owner grants or stamp duty concessions or whatever is flavour of the day.
So any way you cut it, the resurgent mining boom is a positive for property.
Here comes the cavalry.