The productivity boom

As 2013 draws to a close and the curtain comes down on a very tumultuous 12 months for the coal industry, annual reflections intersperse with predictions of what 2014 may bring for the sector.

This year has been a watershed for the industry, bringing challenging headwinds, sector-wide cutbacks and declining commodity prices. An era of austerity has replaced the profligate spending of many: as coal producers apply drastic corrective measures and hope for improving markets, 2014 looms as an era of accelerated productivity. However, this new phase – as I like to call it, a Productivity Boom – is one I believe is borne out of necessity.

Industry challenges

Australia’s coal industry has enjoyed significant growth in recent decades. Exports have risen from AU$ 6.4 billion in 1990 – 91, to AU$ 43.9 billion in 2010 – 11, while employment in the sector in that time has grown from 20,000 people to some 55,000 people, according to Australian Coal Association estimates. However, there has recently been a sharp downturn. In the past year or so mines have closed and projects have been delayed.

The sector is facing a number of very strong headwinds – some exogenous, some self-inflicted. They include sharply increasing costs, weaker markets, declining productivity, prices falling from historic highs and, for the most part, a very strong Australian dollar, which has been making Australia’s export industries less competitive in global markets.

This convergence of issues is due to a combination of cyclical issues, which the industry needs to address, as well as structural problems that will require a wider cast of players to solve.

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