Identifier
Created
Classification
Origin
08MELBOURNE147
2008-12-15 20:54:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Consulate Melbourne
Cable title:  

Commodities Downturn Threatens Northern Territory

Tags:  EIND ECON ETRD AS 
pdf how-to read a cable
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DE RUEHBN #0147/01 3502054
ZNR UUUUU ZZH
R 152054Z DEC 08
FM AMCONSUL MELBOURNE
TO RUEHC/SECSTATE WASHDC 4834
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHZU/APEC COLLECTIVE
RUEHPT/AMCONSUL PERTH 1491
UNCLAS SECTION 01 OF 02 MELBOURNE 000147 

SENSITIVE

SIPDIS

E.O. 12958: N/A
TAGS: EIND ECON ETRD AS
SUBJECT: Commodities Downturn Threatens Northern Territory

MELBOURNE 00000147 001.2 OF 002


Summary
-------

UNCLAS SECTION 01 OF 02 MELBOURNE 000147

SENSITIVE

SIPDIS

E.O. 12958: N/A
TAGS: EIND ECON ETRD AS
SUBJECT: Commodities Downturn Threatens Northern Territory

MELBOURNE 00000147 001.2 OF 002


Summary
--------------


1. (SBU) The Northern Territory's (NT) economy remains healthy, but
is showing early signs of slowing as the global financial crisis
works its way through Australia. The Territory's key mining and
tourism sectors have softened since September while the NT
government continues to tout the US$20 billion INPEX liquefied
natural gas plant as its best buffer against future downturns. The
NT's heavy dependence on minerals, however, makes it particularly
vulnerable to global declines in commodities prices. End Summary.

Global Slowdown Chips Away at NT Economy
--------------


2. (SBU) Despite recent government assurances to the contrary -
Northern Territory (NT) Treasurer Delia Lawrie said in early
December that "there is no sign yet that the global financial crisis
has impacted our economy" - there is evidence that the NT economy is
slowing. During a December 8-10 visit to Darwin, NT Chamber of
Commerce CEO Chris Young told post that he expects the Territory's
2008 annual growth rate to slow from earlier predictions of 6.6
percent to 4 percent. He stated that resource exploration has
dropped off recently due to lower commodity prices. In addition,
tight credit has harmed smaller miners who rely on commercial
lending to run their businesses.


3. (SBU) There are other indications that the Territory's mining
sector is slowing. The McArthur River silver/lead/zinc mine
announced in early December that it would lay off 200 of its 600
employees due to softening demand. According to Chris Young, Rio
Tinto's Nhulunbuy bauxite mine is also suffering from reduced
Chinese demand. During a visit to Port Darwin, General Manager
Terry O'Connor pointed out stockpiles of manganese which have been
growing since orders ceased in mid-September. (Note: Mining and
resource exploration account for 25 percent of the NT's gross state
product (GSP) and employ approximately 4,600 of its 217,000
residents. In 2006-2007, the Territory had the highest per capita
GSP in Australia (A $63,548/US $41,942) largely thanks to the
resource boom. The NT's dependence on minerals as a percentage of
its economy is second only to that of Western Australia. End
note.)

Tourism - The NT's Wild Card

--------------


4. (SBU) According to Suzanne Morgan, Manager of International
Operations for Tourism NT - a government sponsored tourism advocacy
group - travel to the Territory is noticeably down. Morgan said
that the wet season (November to April) is traditionally slower than
the dry season, so the full effect of the financial crisis will not
be visible until May 2009. The United States is the fourth largest
source of tourists for the NT, and during fiscal year 2008, 9.1
percent fewer U.S. visitors traveled to the Territory. The NT's
tourism industry is second in importance as a percentage of GSP only
to the resources sector, providing 11.7 percent of the Territory's
jobs and catering to approximately 1.4 million visitors each year.

The INPEX Insurance Policy
--------------


5. (SBU) INPEX, a Japanese oil and gas firm, has selected Darwin as
the future site for a US $20 billion liquefied natural gas (LPG)
operation. The plant will bring gas onshore from the Ichthys field
off the coast of Western Australia for processing in Darwin.
According to Brian O'Gallagher at the Chief Minister's Major
Projects, Asian Relations and Trade Department, the INPEX plant will
provide the Territory with as many as 2,300 jobs and has already
stimulated the development of additional residential housing for
anticipated population increases.


6. (SBU) Pending an environmental approval in October 2009, a
Commonwealth production license in November 2009, and a final
investment decision by INPEX in 2010, construction of the plant is
due to commence in 2010 with the first export of LNG slated for late
2014/early 2015. The NT government sees this project as a
cornerstone of the Territory's economy. Chief Minister (the
Territory's equivalent to a Premier) Paul Henderson stated in early
November that the "financial crisis will impact everywhere, but with
the strong Territory economy, the INPEX investment and the stable
Australian financial system, we are in a good position to withstand
the fallout."

Snapshot of the NT Economy
--------------


7. (U) In addition to resources and tourism, the NT's economy is
dependent on primary industries including cattle, fish, prawns,

MELBOURNE 00000147 002.2 OF 002


pearls and mangoes. Primary industries employed 3,000 people in
2006-2007 and accounted for A$508 million (US$335 million) of the
Territory's GSP during this period (3.5 percent of GSP). Ten
percent of Australia's defense forces are stationed in the NT,
providing A$245 million (US$162 million) in infrastructure and
peripheral industry investment. Government administration, defense,
health and education together accounted for 20 percent of the NT's
GSP in 2005-06. The most significant U.S. company doing business in
the NT is ConocoPhillips, which operates a LNG plant in Port Darwin
and employs approximately 120 people. Most of the plant's LNG is
sold to Japanese buyers.


8. (U) The Northern Territory's GSP in 2006-2007 was A$14.49 billion
(US$9.56 billion); unemployment was 3.8 percent. Approximately 64
percent of the NT's goods exports went to Japan, China and
Indonesia; only 7.4 percent went to the United States. According to
Brian O'Gallagher, the Territory is focused on taking advantage of
its location to transform itself into the principal gateway between
Australia and Asia. An uninterrupted railway from Adelaide to
Darwin, completed just a few years ago, allows freight to move from
Australia's main population centers overland rather than around the
continent by sea freight to Asia.

Comment
--------------


9. (SBU) Confidence remains high in the Northern Territory where the
resource boom has helped reduce unemployment to all time lows and
has allowed the Territory to claim the title of highest per capita
state income in Australia, although that figure masks poverty and
poor living conditions for much of the NT's large indigenous
population. As Rio Tinto's December 11 announcement that it would
lay off 14,000 workers worldwide illustrates, however, the Territory
is particularly vulnerable to a downturn in the global commodities
market. Lay-offs at the McArthur River mine and the growing
stockpiles of manganese at Port Darwin are ominous signs of tough
times ahead for the Northern Territory's economy.

THURSTON