LAUNCESTON, Australia, June 23 (Reuters) – The image of miners as mainly burly blokes in hard hats and high-vis vests is likely to change in the next decade to one of computer geeks controlling automated machines while sitting thousands of kilometres away from the pit.
That’s certainly the scenario outlined in a major report called “Australia’s future workforce?”, released last week by the Committee for Economic Development of Australia (CEDA), a think-tank encompassing businesses, community groups and academic institutions.
More than five million jobs, or about 40 percent of Australia’s current workforce, have a “moderate to high” likelihood of disappearing in the next 10 to 15 years, CEDA said in the report.
What is relevant for commodities in this scenario is that mining and agriculture are among the sectors likely to be affected the most because of technological advancements.
The report notes that technological changes, while disruptive, often lead to higher incomes and increased employment opportunities as more wealth is created and productivity boosted.
Much of CEDA’s report is about how Australia can meet the challenges of technological change by ensuring that best practices are developed and implemented in areas as such as education and training and industrial policy.
But the impact of such a dramatic change in the way commodities are produced in such a short time frame will have ramifications for commodity markets across the globe, and not just in Australia.
Already this can be seen in how major iron ore miners Rio Tinto and BHP Billiton are changing the way they operate their massive mines in Western Australia state.
Rio Tinto has seen a 13 percent decrease in load and haul costs, an 8 percent cut in drilling costs and up to a 15 percent reduction in mining fleet purchases at its iron ore mines in Western Australia, Michael Gollschewski, managing director for Rio Tinto’s Pilbara Mines, wrote in the CEDA report.
Rio Tinto has deployed driverless trucks, which are controlled by operators in Perth, some 1,500 km (900 miles) from the mine, and has also automated drilling, loading and other functions.
This has already resulted in a changing workforce, with fewer traditional mining jobs that might be described as “blue collar” and more positions that require technology and computer skills.
The impact of these changes can be seen in the almost relentless lowering of costs achieved by Rio Tinto, and others, with a tonne of iron ore being produced for about $20 a tonne, or less than half of what it was in real terms a decade ago.
The motivation, at least from the miners’ point of view, for increasing the use of technology is to drive down costs and thereby boost profitability.
However, as with most innovations, there are unintended consequences.
The most important from a commodity market point of view is that technology will help drive prices lower on a structural basis.
Up to now, the dramatic declines in the prices of iron ore and other commodities have largely been blamed on producers bringing on too much supply just as demand growth in China, the world’s largest consumer of natural resources, was slowing.
This is largely true, but what may keep prices low for an extended period is technology-driven cost reductions.
If the cost of producing a tonne of iron ore, coal, alumina, nickel, copper, or even agricultural commodities such as wheat, cotton and coffee, can be lowered, it is logical that the price at which it can be sustainably sold will also drop.
If the cost of producing a tonne of iron ore in Western Australia is $20 a tonne, and the other costs such as royalties, taxes and transportation add about another $20, the all-in cost is about $40.
This means that the price can fall to a level close to this and stay there for an extended period of time as miners will still have sufficient incentive to produce, rather than idle output.
The longer-term implication of technology-driven innovation in mining and agriculture is that the differences between developing and developed countries may be exacerbated.
A wealthy country such as Australia has the ability to invest in its education and training facilities to produce more graduates in the so-called STEM disciplines (science, technology, engineering and maths).
Also, it likely has companies with access to sophisticated capital and banking markets that will support and invest in efforts to improve technology.
In contrast, developing, resource-rich countries such as South Africa and Indonesia often have different priorities.
The biggest among them is the need for jobs for growing populations, and industrial and education policies are more targeted at increasing the volume of jobs available, rather than the quality of these positions.
It’s conceivable that if the CEDA report is correct, then countries like Australia, Canada and the United States may be able to invest in technology to re-shape their resource sectors, thereby driving down costs.
They may be able to do this at a faster pace than competitors in the developing world, thus limiting the ability of poorer nations to leverage natural resources to raise their overall wealth levels.
[“source – reuters.com”]