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Mining Boom

What happened to the Chinese crash and end of the mining boom?

Nathan Lear
Partner/Private Client Adviser
17 Nov 2014

The looming so called crash of Chinese economy still hasn’t happened. For several years now the Australian public has been waiting in fear for the supposed end of the Australian mining boom and the devastating flow on effects it could have on our economy.

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.  

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.