The China story has been one of a slow but sure winding back of the speed of light growth rates to something more resembling a rate closer (albeit it still too high) to sustainable over the last year or so. The real problem though is that if China's demand contracts too far (or over corrects) what damage could it do in resource dependent countries like Australia.
Up to this point we've seen a steady decline in resource prices especially coal. As steel production in China hits the wall along with difficulties in financing within the steel and coal industries (China) then the financial viability of mining in Australia continues on downward glide path.
Hence:
Glencore suspends Australia coal mine as market worsens
SYDNEY – Glencore Xstrata will suspend operations at its Ravensworth underground coal mine in Australia following a plunge in coal prices due to a supply glut.
The move underscores the plight of coal miners operating in Australia, including AngloAmerican, BHP Billiton and Rio Tinto , which have closed mines and cut staff in recent months to combat worsening conditions.
The price of coking coal used in steelmaking has tumbled by some $200/t from its 2012 high above $300
Over the past 18 months, 1 500 jobs have been lost in mining in the Hunter Valley as market conditions worsen, according to Stephen Galilee, chief executive of the New South Wales Minerals Council.
Most recently, BHP and coal mining partner Mitsubishi 230 jobs would go at the Saraji coking coal mine in Queensland state to enable it to remain viable.
This isn't just a case of a few jobs being lost. Mine operations employ a significant number of local business to provide a wide array of services. When a mine goes into C&M many of those businesses either retrench employees or simply close down.
Chinese steel and coal industries are considered to be inefficient, have at as much as 30% over capacity and heavily indebted to the point they are now defaulting even on interest payments on loans they'll never pay back. Adding to Australia's problems are significant quantities of supply coming on line from foreign sources over the next 12 -24 months.
The upshot is there is still considerable consolidation required in global coal and steel over the next decade and economies especially smaller localised regional economies will most like struggle for some time as this process of rationalisation evolves.
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