Issue link: https://viewer.e-digitaleditions.com/i/111460
miningreview "A decade ago, iron ore was about US$20 or US$30 a tonne. As the price of iron ore increased over the years, new entrants were tempted into the market and existing players planned huge expansion projects." healthy exports, but the price slump has shown the fragility of Treasury's thinking. Since February 2011 the price of iron ore has swung between US$185 and US$85 a tonne. A decade ago, iron ore was about US$20 or US$30 a tonne. As the price of iron ore increased over the years, new entrants were tempted into the market and existing players planned huge expansion projects. However, when the price tanked in 2012, some big miners put their plans on hold. One was Fortescue Metals Group, which had borrowed heavily over the years to amass debt of more than $8 billion to fund plans to expand production from 55 million to 155 million tonnes of iron ore a year. Fortescue went into a cost-cutting frenzy last September, laying off an estimated 1,000 staff. It is now aiming to produce 115 million tonnes a year. The Bureau of Resources and Energy Economics says iron ore projects worth $25 billion are under way in Australia. Rio Tinto is looking to turn out 353 million tonnes a year by 2015, up from 225 million tonnes, and is spending US$15 billion on expansion, with no plans 58 to cut back. A likely reason for Rio Tinto's determination is it has the lowest output costs among the big miners. When prices drop away, spending on expansion doesn't make as much sense. BHP Billiton shelved its plans to expand the outer harbour at Port Hedland at a cost of US$20 billion. Meanwhile, it is pressing ahead to boost output from 150 million to 240 million tonnes a year. Oversupply will keep prices down unless demand picks up, analysts say. There is no doubt China's economy is slowing, but with its GDP growth at about seven per cent a year, it is still healthy compared with the global average. It was stimulus spending in China between 2009 and 2012 that influenced the sharp increase in prices. With a new politburo in China now encouraging domestic demand, whereby its citizens drive the economy via their own discretionary spending rather than the central party propping things up with spending on major works, will the world's second-largest economy shrink further or expand? Whatever happens, we will feel the effects in Australia. COAL: Love it or loathe it As much as we hear about coal's carbon footprint, the rise of alternative energy sources won't threaten the dominance of the black commodity for quite some time. Coal is dirty, yes, but it is also cheap. If carbon is taxed in import markets around the world, demand for coal will logically soften, but coal is responsible for such a large proportion of electricity generated in import markets that this will not happen quickly. For a start, coal powers 85 per cent of Australia's electricity. Australia is the second-largest exporter of thermal coal used in power generators, with the main markets being Japan, Korea, Taiwan and China. In the 2010–11 financial year, Japan imported almost $7 billion worth of thermal coal and more than $8.5 billion of coking coal – more than twice the levels of 10 years ago. Total coal exports (thermal and coking) are worth $50 billion a year, making it Australia's second-biggest export after iron ore. Coking coal, also called metallurgical coal, is used in steelmaking. Australia is the largest exporter of coking coal, so as