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Australian resource hiring falls as coal loses steam

Published on Monday, 03 Jun 2013
The biggest single-pit open-cut iron ore mine in the world, the BHP Biliton Mount Whaleback mine, 455 km south of Port Hedland. Australian coal miners are steeling themselves for years of production cuts, job reductions and asset sales as swelling shipments from international rivals lower hopes of a recovery in prices for coal. (REUTERS/BHP BILITON)
A man walks next to handling and processing equipment at Macarthur Coal’s Coppabella mine, about 760km northwest of Brisbane. The mining industry Down under is starting to feel the squeeze amid falling overseas demand. (REUTERS/MACARTHUR COAL)

SYDNEY: After Mark McGrath lost his job in Sydney in November, he tried to follow the thousands of Australians who headed to the nation’s mines, which have mopped up surplus workers and fuelled growth for a decade. Not anymore.

Fired by Royal Dutch Shell after 26 years when the oil company shut its Sydney refinery, McGrath put his home in the suburb of Liverpool up for sale to seek a job in the coal mines of the Hunter Valley, 210 kilometres to the north. He couldn’t find work because the boom in demand for coal, iron ore, gold and oil that supported the economy is waning, adding to unemployment swelled by an ailing manufacturing base.

“Companies won’t hire,” McGrath said by phone from the central coast, separated from his family who were packing up the Liverpool home. “They’ve a lot of contractors working in the pits up here,” he said, adding that these contractors would be the first to get the boot.

A drop in hiring of support staff by resources companies is one of the first indicators of a broader downturn because each mining position creates four to five contract jobs in related services, said Martin Whetton, an interest-rate strategist at Nomura Holdings in Sydney.

“Mining service companies are the canary in the coal mine,” said Whetton. “We’re likely to see higher unemployment over the course of the year.”

The Reserve Bank of Australia predicts the labour market will “remain somewhat subdued” and the government, in its May budget, projected unemployment would rise to 5.75 per cent by June 30, 2014, from the current 5.5 per cent. That compares with a US jobless rate of 7.5 per cent and an average of 8.1 per cent for the Organisation for Economic Cooperation and Development (OECD).

DOLLAR DROP

The deteriorating job outlook and a slowdown in China, the biggest buyer of the nation’s minerals, have sparked a reappraisal of Australia’s economic prospects, driving the currency 6.8 per cent lower in the past month.

That’s too late for some manufacturers who have struggled to compete during the Aussie’s longest streak above parity with the US dollar in 30 years. Ford Motor announced on May 23 it would end production in the country after nine decades, with the loss of 1,200 jobs.

Traders are betting the RBA, which held its benchmark interest rate unchanged at a record-low 2.75 per cent after meeting in Sydney on June 4, will in coming months extend cuts to stoke employment, according to swaps data compiled by Bloomberg.

INVESTMENT PEAK

In the past month, mining support companies Boart Longyear, Transfield Services and UGL said the deferral of major projects by large miners in response to falling commodity prices will weaken earnings and spark job cuts. The Bureau of Resources and Energy Economics projected in a May 22 report that investment has peaked after A$150 billion (US$146 billion) of mines were delayed or scrapped in the past year.

Xstrata, the world’s biggest thermal-coal exporter, in March shut its office in Brisbane after announcing in September that it would cut about 600 jobs. Whitehaven Coal said on March 22 that it would revise a mine plan and lose about 40 workers.

“There’s very low demand for labour at the moment in the coal-mining sector,” said Delphine Cassidy, general manager of corporate affairs at Melbourne-based Skilled Group, a labour contractor that has recruited staff for 50 years and has more than half its business in mining, oil and gas. “Instead of having 30 people on a shift, they’ll probably only put an order for 10.”

Almost one in 10 Australian jobs is tied to resource extraction, twice the level of the mid 2000s, according to an RBA paper released on February 20.

OUTLOOK SOURS

Chinese manufacturing indexes showed small businesses struggling, sapping momentum in the biggest market for Australian exports. The official Purchasing Managers’ Index for smaller companies fell to 47.3 in May from 47.6 the previous month, the government said on June 1. A private manufacturing index yesterday fell more than forecast to 49.2 in May, an eight-month low, from 50.4. Levels below 50 signal contraction.

Stewart Harris, who spent his entire 23- year working life at Ford, had expected to stay at the automaker till he retired.

“The skill base we have is so specific to this industry,” said Harris, 42, who worked on the final assembly line at Ford, which said it would close its Melbourne and Geelong plants in October 2016. “I don’t know what the future holds for me.”

Ford has made cars in Australia since founder Henry Ford began building Model Ts in the country in 1925. It costs the company four times as much to make a car in Australia as it does in its Asian divisions, said Bob Graziano, president of Ford Australia.

In the past, workers like Harris could switch to the mining and energy industries in the nation’s north and west. Now, that door is closing. In the three quarters through February, the resource industry lost 10,600 jobs, according to government data, the worst nine-month stretch since August 2009. Manufacturing has lost 28,900 jobs in the past year.

One resource industry that’s helping mitigate the slowdown is natural gas. The growing popularity of the fuel in Asia is prompting companies including Chevron and ConocoPhillips to build seven liquefied natural gas (LNG) projects for almost US$200 billion. That’s helped keep Australia’s unemployment rate at between 5 per cent and 5.5 per cent for 23 of the past 24 months, according to government data.

GAS PROJECTS

Still, construction of Santos’s US$18.5 billion Gladstone LNG project in Queensland will peak this year, chief executive officer David Knox said on May 9. More than 7,000 people are working on the development, he said.

BG Group’s Australian unit said in a May 24 statement it has been hiring more than 15 people a day for six months and 11,600 people are working with the company and its major contractors.

“There had been some pull-back in coal investment plans in the previous year and a significant amount of investment in iron-ore projects had been completed,” the RBA said in minutes of its May policy meeting. “In contrast, a larger share of ongoing mining investment is related to LNG projects.”

McGrath is now working for a labour union helping workers negotiate with management after his four-month quest to land a mining job failed.

“I still know blokes from Shell that haven’t picked up work and are absolutely desperate,” McGrath said. “These guys are looking in the oil and gas industry, but some of them are just so frustrated now and they’ve been to that many interviews. I’m talking blokes that have got 15-to-20 years’ experience.”

(BLOOMBERG)

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