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Mining boom still has legs

Good news out today for Australia’s economy and our miners.

China appears to be experiencing an economic rebound, after exports surged 25% and imports jumped by 28.8%, compared to the previous year. Analysts had expected exports to rise by 17%, and January’s trade surplus was US$29.2 billion, blowing past market expectations of US$22 billion.

We’ve also seen prices for iron ore surge higher, and the commodity is currently trading around US$155 a tonne, having recovered from a fall to below US$90 a tonne in September 2012.

Australia’s iron ore majors, Rio Tinto Limited (ASX: RIO), BHP Billiton (ASX: BHP) and Fortescue Metals Group (ASX: FMG) have all lifted production levels in recent years, and will be making hay while the sun shines. Analysts expect iron ore prices to average between US$100 to US$120 a tonne this year, while Fortescue’s CEO, Nev Power is predicting US$120 a tonne.

With China’s exports and imports growing, the iron ore price may stay around current levels for some time yet. We could also see a recovery in other commodity prices, with coal and copper prices depressed over concerns on Chinese demand. That would be great news for Australia’s economy, with iron ore and coal making up a high percentage of our exports and contributing a big chunk of our GDP.

It could also mean that the federal government will finally achieve some decent revenues from its controversial Minerals Resource Rent Tax (MRRT). Today, the world’s best treasurer, Wayne Swan revealed that in the first six months, the tax had raised just $126 million.

Foolish takeaway

The Reserve Bank has said that mining investment in Australia will peak this year, and the central bank reduced its expectations of economic growth and inflation forecasts. It may be forced to revisit those expectations if China’s rebound continues at this rate.

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More reading

The Motley Fool’s purpose is to help the world invest, better.  Click here now  for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King owns shares in BHP.

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