For well over a decade, Australian resource companies have been riding the coattails of the Chinese economy. The doomsayers have been telling us that the Chinese economy will crash. I think back to the blog I wrote over two years ago, in September 2012, when the Minister for Resources and Energy declared the end of the mining boom. Two years on, it feels like we are still waiting for the end. But should we…

Chinese Gross domestic product (GDP) remains strong. Chinese GDP growth for the July-September 2014 quarter recently came in at 7.3 percent – still very strong numbers by anyone’s measure and streets ahead of the GDP numbers of Australia, the US and Europe.

As with any other sector, there are risks to the mining sector. The biggest risk for our market is a fall in Chinese demand that could see commodity prices tumble. Falling commodity prices would then affect the profitability of resources companies.

Like most sectors, the resource sector moves in cycles. There is no doubt that the Australian resources sector has slowed compared to its peak throughout the past decade. The smaller, high cost miners have been doing it tough in recent times, however the leading Australian resources companies lead by BHP are still very profitable companies. 

I’m not saying the Chinese economy won’t face its challenges in the future, however we definitely haven’t seen the crash a lot of people predicted some years ago. The smaller resource companies will continue to face more pressure as commodity prices fall. However the low cost producers such as BHP and RIO and remain viable. As always, it is important that you speak with you adviser to determine what part resources companies should play in your portfolio, if any.