No end to resources boomAustralia's resources boom is set to...

No end to resources boom

Australia's resources boom is set to last for some time as voracious demand from China and India keeps prices high even as past investment sharply boosts output from the country's mines, a report said.

The upbeat outlook from the Reserve Bank of Australia (RBA) highlighted just why the central bank is wary that the trade bonanza could rekindle demand at home and stoke an inflation rate already at 17-year highs.

The RBA has already raised interest rates twice this year to contain inflation and warned it is ready to act again should the export boom prove too stimulating.

As one of the world's largest resource exporters, Australia has benefited enormously from the rapid rise of commodity prices in recent years. Australia's terms of trade - what it gets for exports compared to what it pays for imports - has climbed by 40% since 2002, delivering a rich windfall to profits, dividends, share valuations and tax receipts.

This year alone, huge increases in coal and iron prices, its two biggest export earners, are expected to lift the terms of trade by a further 20%.

The RBA's report noted that the global supply of resources was finally beginning to expand and heavy investment by Australia's miners was set to lift output sharply.

''However, the ongoing demand for resources from developing Asia is expected to be such that resource prices remain at an elevated level for a considerable period of time,'' the central bank said.

In particular, the emergence of China and India should underpin future growth in Australian resource exports, the RBA said, with current per capita consumption of energy and minerals in both countries well below that of developed economies.

Demand drives supply

The RBA noted that more than 75 million Chinese were expected to move to urban areas over the next five years, implying strong demand for iron ore and coal.

Another example was India's plan to build five ''Ultra Mega'' coal-fired power plants each of which was expected to consume up to 15 million tonnes of imported thermal coal annually, equal to 13% of Australia's thermal coal exports.

The central bank's optimism was supported by the latest survey of Australian exporters by transport group DHL, also released on Thursday.

The survey of 600 exporters found 62 percent expected exports to China to increase in the next 12 months, while 61% looked to lift shipments to India. Such demand would help soak up an expected jump in Australia's output of resources, which has been hampered by supply bottlenecks.

''The large increases in mining-related investment and exploration expenditure over recent years hold out the prospect for a significant supply response,'' said the RBA.

It noted that the current expansion plans of miners like BHP Billiton and Rio Tinto would more than double Australia's iron ore production by 2015.

Billions of dollars of spending on infrastructure was also set to boost transport capacity. The RBA estimated that the capacity to transport iron ore would rise by 36 percent by 2009, on top of a 27% increase between 2005 and 2007.

Coal capacity was estimated to expand by 17% by 2009, having risen by only 8% between 2005 and 2007.

Reuters