Mining boom to ward off recession: BIS

The mining boom is forecast to stay firmly between the nation's economy and recession for at least the next five years according to economic forecaster BIS Shrapnel, which today published a 15-year outlook for the mining sector.

In its Mining in Australia 2008 to 2023 report, BIS said that high levels of mining investment coupled with soaring production is expected to offset the impact of rising costs and interest rates.

As a result, the firm forecast gross domestic product growth to be between 2.5 and 4.5 per cent per annum over each of the next five years.

The firm said such are the high levels of investment and production that it predicts Australia's trade deficit to swing back into positive territory through the fiscal 2009 and 2010 years, the first surplus since 2002.

Overall, BIS estimated that investment in the mining sector rose by 22 per cent in FY08 to $41.5 billion compared to the previous year.

Driving that result was a 45 per cent surge in exploration which had been spurred on by past under-investment and soaring commodity prices coupled with double digit growth in mining construction.

On the commodity price front, with the exception of energy and steel inputs, BIS has forecast a trough in the price cycle in either 2010 or 2011, with the largest price falls to occur in nickel, zinc, lead and copper.

The price outlook for coal and iron ore is for further growth in 2009 before a declining between 2010 and 2012.

"Even with the prediction of further price declines, BIS Shrapnel expects commodity prices to remain well above long-term levels," the firm said.

"With demand continuing to grow at a sharp pace, prices are not expected to fall back to the early 2000s lows, encouraging the development of new prospects and sustaining investment at record levels."

Meanwhile BIS said the outlook for mining varies by commodity and regions, with energy and steel-driven commodities such as oil, gas and iron ore having the brightest prospect over the next five years.

BIS said stoking the positive outlook in the oil and gas sector was the Woodside Petroleum's $10 billion plus Pluto LNG project as well as several other big projects in the state's Carnarvon and Browse Basins.

As a result, BIS said the oil and gas sector will have the highest levels of investment during the next five to 10 years, driven by demand for LNG in east Asia and United States.

Investment in iron ore, nickel and copper is expected to remain strong while investment in coal, gold and base metals is forecast to ease.

Outlining the risks, BIS said a sharp rise in costs and materials, equipment and labour could impact the positive outlook and events such as the pipeline rupture at the Varanus Island gas facility last month also have the potential ramifications.

Other risks include China's economy and also the implementation of a carbon emissions trading scheme could impact the outlook for certain commodities.

"In particular, the promotion of cleaner forms of energy generation will likely come at the expense of thermal coal," BIS said.

"Until clean coal technology becomes commercially viable, BIS Shrapnel warns investment in new thermal coal mines could be delayed, replaced by cleaner forms of energy such as gas and uranium."