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Aussie Boom Towns Go Bust As Iron Ore Prices Crash To Record Lows

Tyler Durden's picture




 

Dalian Iron Ore prices have been cut in half in the last year (which must mean over-supply and not under-demand, right?). Amid China's growth target cut, Iron Ore prices there have crashed to below $60 - a record low - and that is having dramatic impacts across many regions. As we recently noted, Aussie gold miners are producing desperately to generate cashflow, but despite the booming housing market in some areas, as Reuters reports, the drop in iron ore and coal prices (the nation's 2 biggest exports) have led former boom towns to bust as "reality comes into the marketplace."

 

As bad as it's ever been... one-third of 2011 peak credit-enthused levels...

 

Which has led, as Reuters reports, to layoffs and empty streets in Australia's boom towns...

When Probo Junio got a visa to work in Australia, he thought he had won a ticket to the good life.

 

In 2013, the 45-year-old boilermaker left his hometown of Cebu in the Philippines, where he was getting paid about $10 a day, to work in Karratha in Western Australia for $30 an hour. Enough to support his relatives and build a new life Down Under.

 

What Junio didn't expect was that Australia's booming resources industry would go bust less than two years later, taking his job, and leaving him just 60 days to find work or go home.

 

"It's very difficult because most of the companies don't want 457 visa holders," he said, referring to temporary permits for skilled workers.

 

Across the country, people like Junio are falling victim to downsizing. Jobs, once plentiful and well paid, are scarce. Real estate prices in boom towns are sinking and even the notoriously high coffee prices in mining capital Perth have levelled off at under $4.

 

Prices of iron ore and coal, the country's two biggest export earners, have plunged during the last two years amid falling demand from China, in the wake of its economic slowdown.

 

Just a few years ago, foreign workers were flooding into Australia, lured by huge pay as the resources industry scrambled to fill positions. Truck driving and cooking jobs offering $100,000 a year made headlines abroad.

 

But those workers, like Junio, are now hard-pressed to find work, especially if they are on temporary visas. Even permanent residents have to take lower pay.

 

"There is reality coming into the marketplace about salaries," said John Downing, who runs global resources recruiting firm Downing Teal, adding that salary expectations have fallen 10 percent to 25 percent.

And while real estate booms in some regions, it's collapsing in the coal country...

"For Lease" signs are everywhere in West Perth, the headquarters of many mining, oil and gas companies.

 

"You could shoot a cannon down those streets," said resources analyst Peter Strachan. "There's nobody there."

 

Commercial vacancy rates in the city are near a 20-year high of 15 percent as resources companies downsize or shut down, said Joe Lenzo, of the Property Council of Australia.

 

The real estate market has also been hit in the coal country of Queensland, across the continent.

We leave it to one old-timer's hope to conclude:

It may be the worst of times, but old hands expect things will improve.

 

"Just as a lot of people thought the boom would never end, some people might think the bust will never end," said recruiter Downing. "We will go through better times."

*  *  *

Coming to a Shale region near you soon...

 

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Fri, 03/06/2015 - 22:58 | 5863756 Spungo
Spungo's picture

Sell long dated put options on the dip! Finding an appropriate base metals ETF is your job.

Fri, 03/06/2015 - 23:27 | 5863800 flacon
flacon's picture

What a glorious world we live in. Every thing is (nearly) free! The oceans are turning to lemonade - just a little while longer and we will have free homes, free healthcare, free jobs, free everything! 

 

Fri, 03/06/2015 - 23:35 | 5863836 Harbanger
Harbanger's picture

No. We're about to find out that nothing is free.  Like Obamacare.  The Greeks are also getting their lesson in "nothing is free" ahead of the rest of the developed world.

Fri, 03/06/2015 - 23:47 | 5863854 Publicus
Publicus's picture

China can now buy those mines on the cheap.

Sat, 03/07/2015 - 01:52 | 5864044 taggaroonie
taggaroonie's picture

...with printed money!

Sat, 03/07/2015 - 08:47 | 5864283 PhilB
PhilB's picture

Everything is free alright, free money, unlimited healthcare, homes, educations, etc...Everything, that is, except ourselves.

Welcome to Global Slavery..

Sat, 03/07/2015 - 10:02 | 5864358 Handful of Dust
Handful of Dust's picture

Sounds "Robust."

 

Perth used to be a nice sized beautiful city there on the west coast until the boom turned it into a mess ... like so many cites across the world ... as a result of the massive QE's and out of control CBs.

Sat, 03/07/2015 - 02:14 | 5864073 DavidAKZ
DavidAKZ's picture

Seems free for Goldman though, wouldn't you agree ?

Sat, 03/07/2015 - 03:11 | 5864128 DavidAKZ
DavidAKZ's picture

and what about those of use who have to work for a living. I'm coming to the conclusion we just stupid.

Fri, 03/06/2015 - 22:58 | 5863757 A Lunatic
A Lunatic's picture

"The boom will never end" = STUPID.......

Fri, 03/06/2015 - 23:26 | 5863817 flacon
flacon's picture

In Germany in the hyperinflation the stock market was up millions, if not billions of percent. 

Fri, 03/06/2015 - 23:02 | 5863761 LetThemEatRand
LetThemEatRand's picture

"Dalian Iron Ore prices have been cut in half in the last year (which must mean over-supply and not under-demand, right?)"

It means neither.  There is no market reason for a halving in value in half a year of a commodity sold on a worldwide scale when there is no major global event such as a world war or an asteroid or something.  Same with oil.  The price did not halve in a matter of months because of market forces.  Or said more concisely, there is no market.

Fri, 03/06/2015 - 23:29 | 5863820 Harbanger
Harbanger's picture

WTF do you know about economics?  It's best you stay with your standard leftist dribble and talking points.

Sat, 03/07/2015 - 00:10 | 5863905 LetThemEatRand
LetThemEatRand's picture

It's "drivel," not "dribble," brainiac.

Sat, 03/07/2015 - 00:40 | 5863949 Harbanger
Harbanger's picture

Wanna explain the Bib?

Sat, 03/07/2015 - 00:47 | 5863960 LetThemEatRand
LetThemEatRand's picture

As a leftist, I respect your inability to speak our language.   And your other tendencies.

Sat, 03/07/2015 - 00:52 | 5863968 Teamtc321
Teamtc321's picture

HOPE, HOPE AND CHANGE !!!!!!!!!

Did you get a tingle down your leg, LTES?

Sat, 03/07/2015 - 19:39 | 5865669 bowel collapse
bowel collapse's picture

It's dribble when it comes out of your arse and in that case may be accurate

Fri, 03/06/2015 - 23:46 | 5863852 Yen Cross
Yen Cross's picture

LTER,  We need to work together. ;-)

Fri, 03/06/2015 - 23:49 | 5863861 Harbanger
Harbanger's picture

With an unemployed lawyer?  I hope you have good insurance.

Fri, 03/06/2015 - 23:53 | 5863869 Yen Cross
Yen Cross's picture

 Self Insured. You have a question?

 You did read the charts? You know what's coming?

  I don't take sides.

Fri, 03/06/2015 - 23:54 | 5863877 Harbanger
Harbanger's picture

Good Luck.

Sat, 03/07/2015 - 00:11 | 5863888 Yen Cross
Yen Cross's picture

 You're suggesting I buy insurance?

 Harbanger,respectfully.  I think life is too short. Why is it you guys feel the need to attack each other?

I'm self insured.

Sat, 03/07/2015 - 01:03 | 5863985 Teamtc321
Teamtc321's picture

Yen, not to get personal, I always look for your wisdom on market post. But grow up around leftist technocrats like LTES, in a productive mindset, you would understand the "Let Them Eat Shit LTES" attitude, IMHO.

They are lying, diversionary sacks of shit. Just read their bible, Radical Rules, by Alinsky. Game, set, match.

Sat, 03/07/2015 - 01:19 | 5864006 LetThemEatRand
LetThemEatRand's picture

Let them eat shit indeed.  Very cogent observation that shit=Rand.

Sat, 03/07/2015 - 02:00 | 5864050 turnoffthewater
turnoffthewater's picture

"Why is it you guys feel the need to attack each other?"

He's an unemployed lawyer.

Sat, 03/07/2015 - 02:09 | 5864063 LetThemEatRand
LetThemEatRand's picture

Better call Rand.

Sat, 03/07/2015 - 02:16 | 5864075 DavidAKZ
DavidAKZ's picture

If there is no market, then what is this nonsense about over-supply ?

Fri, 03/06/2015 - 23:03 | 5863766 Thirtyseven
Thirtyseven's picture

Williston.

Fri, 03/06/2015 - 23:12 | 5863779 Jack Burton
Jack Burton's picture

I live in the heart of Iron Ore country, NE Minnesota. Oddly enough, there is little talk of shutdowns or layoffs. The shipping port right outside my window is still loading the big ships everyday. And we are an expensive producer, our ore is processed to reach furnace grade. Anyways, I expect the shit to hit the fan soon, with these prices, profits are marginal at best.

We also are developing huge copper nickle mines. So far, no talk of stopping development. Copper prices and demand have tanked, and new mines are opening around the world. Still our big underground mine is still going forward. Investors will be slaughtered!

Fri, 03/06/2015 - 23:28 | 5863818 Thirtyseven
Thirtyseven's picture

Duluth?

Sat, 03/07/2015 - 11:15 | 5864434 NoPension
NoPension's picture

Read Fofoa's latest post. He offers an explanation.
Makes sense.

Sat, 03/07/2015 - 12:08 | 5864571 AbbeBrel
AbbeBrel's picture

Thanks - *very* interesting.

Fri, 03/06/2015 - 23:48 | 5863822 Yen Cross
Yen Cross's picture

 The Stevens -Abbott team, harkens back to the 70-80's.

   The Northern Territory& Northern Queensland

 The current Australian.gov is solid. Much better than the previous.

Sat, 03/07/2015 - 02:18 | 5864078 DavidAKZ
DavidAKZ's picture

Australia.gov. is what ?

Sat, 03/07/2015 - 12:05 | 5864566 _ConanTheLibert...
_ConanTheLibertarian_'s picture

A porn site.

Sat, 03/07/2015 - 03:14 | 5864131 Element
Element's picture

Amen Yen. I despise lib/nats but a fair bit less than Labor and almost infinitely less than Greens. The Lib/Nats are arseholes, but if you need to take a good dump, you do need a competent arsehole. 

 

Sat, 03/07/2015 - 10:34 | 5864383 thestarl
thestarl's picture

Sorry Yen gotz to disagree man

https://www.youtube.com/watch?v=c3IaKVmkXuk

Sat, 03/07/2015 - 19:43 | 5865678 bowel collapse
bowel collapse's picture

You have got to be fucking joking....right?
That are a pack of blatant oxygen thieves!

Fri, 03/06/2015 - 23:38 | 5863842 mrpxsytin
mrpxsytin's picture

As a Perth resident, I can confirm that this article is correct. In fact, it's leaving a lot more negative stuff unsaid.

But I rest easy knowing that I live in a city surrounded by a radius of food producing area spanning a thousand kilometres. You sure as hell will not starve in this city.

Fri, 03/06/2015 - 23:50 | 5863866 Yen Cross
Yen Cross's picture

 Where's Julia Jiliard? Fake " red hair"?

Sat, 03/07/2015 - 02:20 | 5864082 DavidAKZ
DavidAKZ's picture

Didn't you know Australia is a US protectorate ? Julia now a Brookings Institute member

http://www.brookings.edu/experts/gillardj

 

Sat, 03/07/2015 - 03:18 | 5864132 Element
Element's picture

It's been one since soon after Pearl harbour. It eased after the cold war is all.

Sat, 03/07/2015 - 00:48 | 5863930 NEKO
NEKO's picture

Here on the east side of Australia there is not much talk of a downturn, except by those directly affected by mining, we are well insulated from reality. There is a belief in the church of property ownership - salvation is in property, and with the Chinese buying like crazy you cannot loose. This so called boom is merely the inevetable rise in property values, some years a small rise and some years a bigger rise, but always up. 

And just like the idea that property in Australia can't go down, black swans were thought not to exist... that is until some were found in western Australia... Ooops!

 

Sat, 03/07/2015 - 03:28 | 5864136 Element
Element's picture

Tourism is not too healthy either. When mining slumps, engineering, infrastructure building, urban construction all dry up to, the aggregate demand that keeps shops ticking over also dries up. The problem we face is the downturn is global, and it is gradual (see global macro). This will not be like 2009, fast-in and fast-out, there is a real chance of actual protracted recession.

But if China growth is down at 3 to 4%, then frankly that's a slightly more sane level. If Iron is at $60 it is hardly end of the world either.

I see the article above alls it a complete bust of the resources sector, but that is exaggerating BS, there is a downturn amid growth, production remains high, prices remain fair to good, and non-bubblish ... finally.

If it stayed that way for a five years it would be just about perfect.

Sat, 03/07/2015 - 01:04 | 5863988 Curiously_Crazy
Curiously_Crazy's picture

Same here mrpxsytin, and though I can confirm it's mainly correct some comments are pure hyperbole. Shooting a cannon down West Perth? I mean c'mon the bloody joint is just as busy as it's always been - a majority of the new office space created west of Loftus street before Graham Farmer Freeway is already leased as are the new developments in Osborne Park.

Not saying there won't be defaults left right and centre but at this stage things seem to still be moving along as they always have.

Cheers

Sat, 03/07/2015 - 00:04 | 5863896 Anonymous_Benef...
Anonymous_Beneficiary's picture

Boy, it sure would be nice if this would be reflected in the retail price of steel!

Sat, 03/07/2015 - 00:21 | 5863931 OldPhart
OldPhart's picture

Wouldn't it?  Stock inventory now while it's low, eventually that price will rocket up.  One of the groups I'm controller for is in retail steel.  They had a similar pop a couple years ago where the steel price dipped and we bought only to see the price shoot up.  We had some huge margins for a while.

Sat, 03/07/2015 - 00:22 | 5863932 Bunga Bunga
Bunga Bunga's picture

Cramer smells a bottom here.

Sat, 03/07/2015 - 03:32 | 5864141 OldPhart
OldPhart's picture

Cramer's nose is in more crack than a crack addict.

Sat, 03/07/2015 - 00:54 | 5863970 Aussiekiwi
Aussiekiwi's picture

I live in Perth, for most people there is a vague understanding that mining is doing it a bit tough at the moment but there is a general optimism that it will all work out ok, most people in Perth are not directly affected by what is happening in mining towns hundreds if not a thousand kilometers away.

However, I notice driving around that there is a lot more for lease retail signs around that are not going away, I have been watching a corner plot near Perth that has had signs up to 'Invest now in an up and coming apartment complex now!' for about 2 years, the only thing that has changed is they cleaned the block up and put a small site office there and re-freshed the signs.

If you drive down past the casino at night there are many for sale signs for the large 20 story apartment buildings there but very few lights on (owned by Chinese?...maybe)

Rents have got a lot cheaper, no doubt about that and I think unemployment is going to get a lot worse probably followed by a real estate crash, but, most people despite Perth having boomed on a mining boom just can't see things  turning around now the boom is over.

Over on the East Coast, Sydney the Chinese are buying everything that is not nailed down.

Sat, 03/07/2015 - 01:10 | 5863994 Curiously_Crazy
Curiously_Crazy's picture

. "Rents have got a lot cheaper"

I keep hearing that too. Unfortunately mine still went up $10 a week last renewal and I don't know anyone who's actually went down.

Cheers.

PS Spot on re the comment most in Perth are not effected by it. There are the FIFO workers but that's less than 1% of workers overall.

Sat, 03/07/2015 - 01:56 | 5864042 Aussiekiwi
Aussiekiwi's picture

Hi Curiously...perhaps you need to investigate moving.....or threaten your landlord to move.

http://www.abc.net.au/news/2015-01-14/prices-continue-to-drop-in-perths-...

 

 

http://www.macrobusiness.com.au/2014/04/winter-chill-comes-early-to-pert...

Its the hundreds of millions of dollars that poured into Perth during the boom minig  years that is abating.

Sun, 03/08/2015 - 01:57 | 5866310 Curiously_Crazy
Curiously_Crazy's picture

Hi mate,

As I said I'm well aware of all the media reports on the issue. Fact remains though nothing is cheaper around where I live within about a 10km radius, and I like being between the river and the beach :)

Sat, 03/07/2015 - 03:37 | 5864146 mrpxsytin
mrpxsytin's picture

Rents are dropping in North Perth. One person I know got his dropped by $25. And north Perth is a desirable suburb. YYour landlord must be happy he found such a soft touch. 

Other professionals are just up and leaving. I know 3 couples who have left this year.

Sat, 03/07/2015 - 08:00 | 5864249 bentaxle
bentaxle's picture

Exactly!!

It's the agents or Landlord's JOB to get at least the same or ideally higher rent. So ALL renewals go out automatically demanding an increase, usually a modest one. If the tenant fails to challenge and ask for a decrease, i.e at the very least call the agent's bluff......then it's the tenant taking it up the ..s! Which is pathetic!

Message to ALL tenants, "Challenge your rents at renewal, don't just sit there and take the increase AS if you have a duty to be grateful FFS!" Use what leverage you DO have, be prepared to move!

Sun, 03/08/2015 - 01:56 | 5866307 Curiously_Crazy
Curiously_Crazy's picture

Heh not at all, though it could be the suburb/region (without narrowing it down to much I'm in Barnett's electorate) Nowhere has gone down around here and most places have gone up.

Cheers

Sat, 03/07/2015 - 09:31 | 5864324 Jimbodude
Jimbodude's picture

Naive. Where do FIFO spend their money? They don't spend it on site.

Sat, 03/07/2015 - 01:03 | 5863981 fuck_wad
fuck_wad's picture

Australia still has growth of 2.5%... for now.

This dip will pass and if it doesn't, say hello to my embargoed iron ore.

Could the Chinese or Russians even make enough guns, bullets and death machines if Australia's mines, dirigiste Germany/Japan's tooling are on the UkUsa's war machine petro dollar conveyor belt?

Isnt gonna happen. Enjoy the prices because the shortages and flipside is coming

Sat, 03/07/2015 - 14:02 | 5864847 clambake
clambake's picture

Over priced housing is about 2% of that growth.

Once the oil price drops again Aussies will see it as a bonus an not the harbinger it is.

Some serious 180 degree action needs to occur in the commodities paper trading system for your scenario to fall into place.

As the deflation continues the economy will appear to be humming along nicely around expected growth figures.

Once the defaults start occuring in the tiers of creditors that it will eventually happen in, inflation will hit big time.

The RBA will be between the rock and the hard place as far as interest rates go.

All those with leverage realestate loans will be unloading those beauties and watch the dominoes fall.

Gold and Silver for savings / wealth preservation. About 2 to 3 times your annual take home.

Good luck trend setters.

Sat, 03/07/2015 - 12:06 | 5864558 conscious being
conscious being's picture

Answer to your question Likely Monsanto, because nobody likes Monsanto. Monsanto is pretty close to Fergeson isn't it?

Re. The link, Which entity worked with apartheid SA to test nuclear weapons on Bouvet Is.?

Sat, 03/07/2015 - 18:19 | 5865439 WillyGroper
WillyGroper's picture

Dunno.

I was focused on St. Louis.

Seattle I assume a base it the target.

Sat, 03/07/2015 - 03:07 | 5864068 DavidAKZ
DavidAKZ's picture

"It's very difficult because most of the companies don't want 457 visa holders," he said, referring to temporary permits for skilled workers"

Oh really ? As an Australian national, my experience with 457 visa holders is they are kept on while the Australian citizen is sacked because they are a) deemed too expenise b) not compliant enough when compared with our East Asian counterparts.

Where I work , there is 2 unfair dismissal cases against the employer for abloshing the (Australian) person and not the 457 visa holder - er position.

Ahh, the logic of Capitalism.

Sat, 03/07/2015 - 12:25 | 5864617 NidStyles
NidStyles's picture

If Australia had capitalism the economy wouldn't be so shitty. 

Sat, 03/07/2015 - 02:24 | 5864088 Magooo
Magooo's picture

They need the Chinese to build more ghost cities!

Sat, 03/07/2015 - 02:53 | 5864109 Element
Element's picture

Not a record low, as such, lowest since iron ore contract price abolished, post price negotiator Stern Hu being chucked into a Chinese dungeon, on trumped-up charges by Beijing, which then cost them a fortune in much higher prices than they otherwise would have had to pay, i.e. on contract it would have been ~$60 since mid-2009!!

In other words, Stern Hu should be given a meddle, as he's clearly the best iron ore price negotiator this planet has ever seen, buy a very large margin! (accidental pun)

Awesome stuff Stern! You'll get out of there one day, and we'll finally hear what really went on.

But bottom line; if it's at about $60 that's a perfectly viable market price. If it was below $40 it might be a problem (China fried). Those not geared for around $50 with room to go lower in a  floating price got too greedy, and blew it. Not complicated.

Sat, 03/07/2015 - 03:03 | 5864118 Element
Element's picture

 

 

"It's very difficult because most of the companies don't want 457 visa holders," he said, referring to temporary permits for skilled workers.

 

So? ... we're supposed to feel bad for a NON-CITIZEN? ... who was sending the money OUT of the country? ... and is now out of work?

Who writes this shit?

Stiff shit mate! Resources do that every five years historically. It comes, it goes. The people who have seen it all before don't whine about it, they expected it, and go fishing and stuff. Taking a break until the next boom ... which will be along ... well, a bit later than advertised.

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