Mining in Australia involves the extraction, as well as the processing of a wide range of mineral resources spread across the country. The mining activities fall into various classification depending on the nature of the activity. These categories include coal mining, mining of oil and gas, mining of metal ores such as bauxite, and mining of construction materials (Connolly and Orsmond 26). Australia has an uneven distribution of mining resources, with some states better endowed than others. For instance, Western Australia has large deposits of iron ore and natural gas, whereas New South Wales and Queensland areas have plenty of coal (Mankala, Bosire and Ukstins 34). The mining sector in Australia is a key contributor to the country’s economy, accounting for approximately five percent of the country’s GDP. Since the mid 2000’s, the industry has been in a boom. This paper looks at the microeconomic factors such as government policies and market structures that affect the mining industry in Australia at present
Microeconomics mainly deals with the analysis of the factors that have an impact on economic choices made by individuals. Hence, it focuses on the availability of resources as well as the usage of these resources. One of the key microeconomic factors that affect mining in Australia is technology advancements and innovation. For instance, in the Western area of Australia, the mining industry is the primary driver of the economy. Hence, in order to maintain their competitive edge, the local government as well as the private companies and corporations are constantly investing in new technologies (Mankala, Bosire and Ukstins 27).
The impact of the new technology is that it brings about innovative techniques of mining. These innovative techniques in turn lead to the reduction of costs, as well as improvement in the economic efficiency of production. One of the key areas that illustrate this is the Iron Ore mining. Iron ore is among the leading products that are mined from this area. In order for this sector to be competitive, it must ensure that there is reliability as well as competitiveness and control of costs. Hence, the industry has to constantly engage in technological advancements in order to ensure it remains ahead of the game.
One prime example of the technological advancement is the Remote Operations Center that is located close to Perth Airport (Mankala, Bosire and Ukstins 28). The center serves as the base from which Rio Tinto’s mines and rail systems, as well as port facilities are coordinated. Thanks to the area being very dry, companies are forced to invest in water management technologies.
Another factor that has a huge effect on the mining industry is the availability of labor. Mining is a highly technical operation and as such, it requires staff with skill and expertise. Since not many people possess these technical skills, the mining companies are forced to engage in training programs for staff. This in turn increases their cost of operations, which in turn increases the prices of commodities. A case in point here is the Pilbara region where the companies engage in mining of iron ore. Since the area lacks qualified labor, the companies often have to fly staff in and out of the area, which is rather expensive to do (Connolly and Orsmond 45).
The other microeconomic factor that affects the Australian mining industry is the ease of entry into the market. For a market of any nature to be competitive, it must allow free entry and exit into and out of it. However, the Australian mining sector is not a perfect competition. In this sector, various barriers to entry exist. One of these barriers to entry is the large capital investment required. In order to begin a mining operation, a company must engage in heavy capital expenditure, which means that new firms, which lack the resources to purchase these materials, are severely limited in entering the market (Mankala, Bosire and Ukstins 24).
The other major barrier to entry is the control over infrastructure. In Australia, the main method of transportation for the minerals and mineral products is the rail system. This railway system is public in some places whereas in other areas the only mode of transportation available is through the private railways. One of these areas is the Pilbara region of Western Australia. In this region, two major companies Rio Tinto and BHP Billiton operate private railways and run the major ports (Mankala, Bosire and Ukstins 37). Hence, any new companies attempting to enter the area find it extremely difficult. These barriers to entry have led to the creation of an oligopolistic market structure in the mining industry.
The other factor that affects the mining industry is the government policy. The government policy refers to the actions of the government that affect the operations of the mining industry in terms of regulations and licensing requirements, as well as taxation. One of the primary issues affecting the mining sector at present with regard to the government policy is taxation. As the mining sector in Australia has boomed, the large mining firms in the country have witnessed a growth in their profit margins. In light of these record-breaking profits, the Australian government instituted a new tax on mining profits. This is the Resource Super Profits Tax, which is charged on companies at the rate of 40%. This tax has a huge impact, especially on large firms like Xstrata and Rio Tinto (Mankala, Bosire and Ukstins 25). This is because the firms find themselves with reduced ability to be globally competitive.
Another microeconomic element affecting the Australian mining industry is the availability of demand. Most of Australia’s mineral resources are destined for the export market, and particularly the Chinese and Japanese markets, which are the main markets for products such as Iron Ore. Despite the fact that global demand for metals particularly is on the increase, there is a concern arising in terms of demand. This concern comes from the actions of the main buyer of iron ore, China. The increased investment by the Chinese government in African countries in return for metals may lead to a reduction in the demand for Australian metals hence affecting the mining industry (Pratt 99).
Thus, it is evident that a range of microeconomic factors, both local and international, affects the Australian mining industry at present. The Australian industry is dominated by a few large firms, which derive their oligopolistic power from the various barriers to market entry existent in the mining sector. The mining industry in Australia is a vital contributor to the country’s GDP, with a vast range of mineral resources available to the country. Hence, this means that the government views it as a crucial sector and a source of revenue; hence, the high taxes on the industry. Global factors are represented by the demand for the materials, which is majorly external.
Connolly, E. and D. Orsmond. "The Mining Industry: From Bust To Boom." Research Discussion Paper. 2011.
Mankala, Kumar, et al. "The Western Australia Metals Mining Cluster." Microeconomics of Competitiveness (2011): 12-28.
Pratt, Joseph A. Energy Capitals: Local Impact, Global Influence. University of Pittsburgh Press, 2014.