results and impact on bhp, page-22

mineral price boom to continue: costello Mineral price boom to continue: Costello
20/01/2006 05:36:29 PM

Treasurer Peter Costello is predicting China's love affair with Australian minerals will continue well into the future to underpin the national economy.

The strength of China's development would ensure Australia's economy would grow quickly, Mr Costello, told a conference in Los Angeles.

National income would grow even quicker.

He made the comments as new figures suggest inflation figures due out next week are likely to be benign, in good news for homeowners.

A jump in commodity prices, particularly for coal, iron ore, oil and more recently gold, has underpinned a surge in activity from Australia's mining sector.

This in turn has increased the flow of taxes from mining companies back to Canberra's coffers, funding tax cuts and major spending initiatives in recent months.

But analysts are divided over whether the prices, driven by strong demand from China and India, will continue as part of a commodity price super-cycle, or whether they will fall in the next 12 to 18 months.

Mr Costello appears to side with those who believe commodities are in a super-cycle, telling the Young President's Organisation that the surge in mineral prices was a large part of Australia's strong financial position.

"An important part of the recent economic story in Australia is the sharp increase in our terms of trade, driven by the recent commodities boom," he said.

"Higher contract prices for Australia's exports, particularly coal and iron ore, are expected to take the terms of trade to around 30 year highs.

"Gross domestic income is expected to continue to increase faster than GDP for some time, as these higher prices are sustained by ongoing global demand, particularly from China."

Mr Costello also conceded that Australia appears set for continuing current account deficits despite the high prices being paid for commodities.

This was due to the ownership of Australian-based mining companies.

"The improvement in the current account deficit will be offset to an extent by the outflow of some of the resulting profits to shareholders and owners of foreign mining companies operating in Australia," he said.

Mr Costello said inflation was now at the top of the government's target range of two to three per cent, largely due to higher petrol prices.