Slowing China, growing India to balance minerals and energy earnings for Australia

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Australia’s biggest market for its coal and iron ore might be slowing, but its resources minister still sees a lot more juice left in the Chinese economy that his country can extract in the years ahead.

And then there is India, which Josh Frydenberg says needs a lot more of Australia’s natural resources, as it economy now grows at a pace higher than China’s.

In the long run he is optimistic that Australia’s minerals and energy sector will continue to grow and keep pumping in billions of dollars in an economy that did handsomely during the commodities super-cycle.

“Let’s look at the Chinese economy first. At $11.4 trillion, it’s two and a half times bigger than it was in 2008. As the Minerals Council has pointed out, this means that a 6.8 per cent annualised growth in 2015 is equivalent to 14.2 per cent growth in 2007,” he said in a speech in Canberra.

The deal is simple: while China’s rapid industrialisation in recent years led to more than 200 million people moving to the cities, 37,000 km of rail track and 63 million apartments, there is still enough heft left in China given its large land mass and population.

China’s rail system is one third the size of the United States and one sixth that of the European Union, which means there still exists a lot of demand for Australia’s iron ore and coal.

“When it comes to energy demand, China’s per capita consumption is still a third of that in the United States, an equation that the International Energy Agency predicts will change dramatically as Chinese per capita energy use increases in the years ahead.,” Frydenberg said.

Despite the fact that China plans to cut back heavily on its massive steel production capacity in the next five years in a slowing economy, its iron ore imports show little sign of slacking as each year the Chinese add an economy the size of Turkey.

“But I want to emphasise that the China story is not the only game in town. Economic growth in India as well as that in South-East Asia is driving increased demand for Australia’s resource exports.,” the minister said, pointing out that the Indian economy grew by 7.4 per cent in 2015 and there is an expectation of growth of 6.5 per cent a year from now to 2020.

On the numbers the Indian economy will be five times bigger in 2040 than it is today and as a result, demand for coal, gas, iron ore and renewables is taking off, he said.

For Frydenberg, India has lip-smacking possibilities. It has 18 per cent of the world’s population, but represents only six per cent of global energy use – lower than in Africa on a per capita basis.

India’s power minister Piyush Goyal recent lysaid that the power sector alone had investment opportunities of around $1 trillion, given around 300 million Indians have little access to electricity or no access at all. The government wants every Indian to be connected to the grid by 2020.

Similarly, Frydenberg pointed out that India’s consumption of steel is also comparatively low – quarter of the global average and around one eighth of that in China.

“With over 300 million Indians expected to move to the cities by 2040, demand is soon to escalate. All this is good news for Australia. Contracts for our LNG from our Gorgon project to Petronet LNG have been signed and are soon to flow and our coal exports to India, already worth $5 billion a year, are set to increase,” he said.

Goyal has said India was keen to expand its coal-based thermal power capacity, which means by 2020, India will overtake China, Japan and the EU to become the largest coal importer in the world.

But China remains central to the global resources story, said Frydenberg. “It is the world’s largest producer and consumer of coal, the largest consumer of iron ore and producer of steel, the second largest consumer of oil, and the third largest consumer of gas,” he said.

 

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