Australia refers to it as the mining “capex cliff”.
It’s a jargon term in markets but what it refers to is the sharp decline in mining investment in Australia after the boom in demand from China.
As new mines are brought into production, spending declines. As commodity prices decline, so too does new investment because there are not as many dollars of profit to reinvest.
This phenomenon is no better demonstrated in the chart below, using data from the Australian Bureau of Statistics.
It is constructed based on the first estimate for capital expenditure spend in the financial year ahead.
In 2012/13 mining sector firms estimated that spending would total $113.4 billion. Fast forward four years and they now expect expenditure of just $34.35 billion, a decline of 70%.
Not only has mining CAPEX spend now gone off the cliff, it’s now more than halfway down in all likelihood.
Perhaps of more concern is the continued drop in non-mining sector investment. Spending by “other” industries and manufacturers is expected to fall to just $48.22 billion in 2016/17, continuing the downward trend seen since the global financial crisis.
While there are other signs of rebalancing occurring in the Australian economy, it’s clearly not being seen in business investment.
It’s something that will be worthwhile watching, particularly given expectations that it would accelerate now and in the years ahead.
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