- Research from NAB details how the mini-resurgence in Australian mining is started to put upward pressure on wages.
- High commodity prices have boosted profits in the sector, which is providing support to an economy enduring low wage growth and falling house prices.
- It’s particularly good news for WA, which has lagged other states in both jobs growth and house prices since the mining boom peaked in 2012.
- In addition to existing capital expenditure, NAB highlighted $21 billion worth of new projects from big miners which could provide support in the years ahead.
Amid low wage growth and falling house prices, the negative outlook for domestic consumption tends to dominate the headlines when it comes to the Australian economy.
But within the broader macro picture, there are pockets of good news. Among them is a mini-resurgence in Australia’s mining sector.
Research from NAB this week shows activity levels are rising, for both capital expenditure on existing projects and new exploration.
The renewed focus on costs by Australian miners has been accompanied by a strong lift in commodity prices over the last 12 months.
Now NAB is seeing more evidence of upward pressure on wages. And there are signs that Western Australia’s economy — which has lagged other states since the end of the mining boom — is staging a bit of a comeback.
“A deeper dive into labour demand trends from the SEEK data base reveals an already-emerging increase in salaries on offer in in the ‘Port Hedland, Karratha, and Pilbara’ region over the past year,” said NAB economics director David de Garis.
Although the numbers are coming off a low base, de Garis said advertised salaries for those regions were up a very solid 35% in for the year to July.
“This fits with the general tone of reporting of pressures emerging on costs (including labour costs) from several key resource companies of late, and cannot be of comfort to operators in the sector with aspirations to increase spending and activity further.”
Also of little comfort — recent media reports cited by de Garis raising concerns about a critical shortage of mining engineers, following a sharp reduction in student intake since the end of the mining boom in 2013.
NAB also said some clients had expressed concerns about attracting skilled staff back West, many of whom moved to Sydney and Melbourne to take up jobs in the east coast infrastructure boom.
So there are looming challenges on the labour side, but tightness in the market appears to be acting as a catalyst for pockets of wage growth.
And de Garis said more investment could be on the way as part of “another upcycle yet to unfold”.
“So far, the increased activity seems to be still concentrated on operational expenditure and capex to sustain production,” he said.
But “more recently, the iron ore and oil and gas sectors have lifted their sights with some new projects that have the capacity to support the economy in coming years, not to mention some M&A activity'”.
The hunt for new mineral deposits is accelerating. Analyst Pete Wargent said exploration expenditure for base metals rose to around $500 million in FY18, up from $271 million the previous year.
“This is good news for New South Wales and Queensland, but outstanding news for Western Australia,” Wargent said.
Elsewhere, de Garis noted that big players including BHP, Rio, Fortescue and Woodside Petroleum have all announced plans to develop new mines and gas fields in WA.
Preliminary work is in the process of being carried out and the projects are “not all yet at the final investment stage”,” de Garis said.
However, “as they stand, these four projects total around $21 billion — modest by standards of the resources construction boom — but adding growth momentum nevertheless to a sector already revealing some growth strains”.
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.