(The opinions expressed here are those of the author, a columnist for Reuters.)
May 14 (Reuters) – Many Australians will castigate the country’s new conservative government for a tough first budget that saw cuts to welfare and hikes to taxes, but some of the blame lies with China.
Just as China’s rapid growth of the past decade fuelled a commodity boom in Australia, the slowing of the Chinese economy and its uncomfortable transition to a more consumer-led model means the end of the resource bonanza down under.
While the headlines from the Liberal/National coalition’s federal budget on Tuesday focused on Treasurer Joe Hockey’s cuts to family payments and health, and tax increases for the wealthy, much of the underlying story was contained in the economic forecasts.
Australia’s two biggest export earners are iron ore and coal, and they will be joined by liquefied natural gas (LNG) once the seven projects currently under construction are operating. The last is slated to come onstream by 2018.
China is Australia’s biggest trading partner, accounting for about 36.7 percent of exports. The government’s budget papers paint a picture of muted prices for these commodities, which will impact on the collection of royalties and taxes.
Thermal coal prices are expected to be A$81.24 ($76.17) a tonne in the September quarter, falling to A$79.74 for the period up until the end of June 2016.
This is in contrast to prices above A$100 a tonne that prevailed in the 2011/12 fiscal year and the A$162.80 from the December quarter of 2008.
The current Newcastle spot price is $73.49 (A$78.41) a tonne, close to a four 1/2 year low, meaning the government isn’t expecting a rebound in coal prices any time soon, perhaps a realistic assessment given the global supply surplus and China’s efforts to reduce the use of the fuel as part of pollution control measures.
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