The slowing global economy, especially in China, has cut estimates off the value of our mineral and energy exports in the current financial year.
Mineral and energy exports are now forecast to rise 15% this financial year, against an initial forecast in June for an 18% improvement.
This means the 2011-12 growth outcome, if achieved, will be sharply down on the 27% growth seen in the 2010-11 financial year.
But importantly, it will still be growth in our most important source of export income.
The weakness has already starting to appear in our export data: the fall in October’s trade surplus, released on Monday, was due to lower prices and shipments of iron ore and coal to some markets, especially China.
World prices for iron ore, coal, copper, aluminium, gold and nickel have weakened in the past three months as the euro crisis expands and the impact of China’s tight monetary policy slows that country’s huge manufacturing sector.
We have already seen a very obvious outcome of that tougher monetary policy with world iron ore prices falling sharply to around $US117 a tonne in October, down more than $US60 a tonne from the peak levels earlier in the year.
And while they have recovered to around $US140 a tonne, it’s doubtful they will regain the $US180 a tonne mark they were in the second quarter, for some time to come.
Prices have fallen $US30 a tonne or more for coking coal and less for thermal coal, copper prices are down 20% or more, and aluminium and nickel are at levels not seen for a couple of years.
Oil and gas prices have also drifted lower or sideways.
And Chinese crude steel production hit a 10 month low last month of just over 49 million tonnes, down from the all time high of just over 60 million tonnes in May; that’s a substantial fall of close to 18% in six months.
In fact the estimate has been now cut twice since the initial forecast of around $218 billion was made in June by ABARES, the Australian Bureau of Agricultural and Resource Economics.
In the September forecast from BREES (The Bureau of Resources and Energy Economics, which took over the minerals part of the forecasting mid year) that was trimmed to around $215 billion and in the December forecast, released yesterday, it dropped to around $205 billion.
All up the fall has been 6% since the June forecast, with most of that (around 4%) happening between the September and December estimates.
The falls are not a big surprise and as pointed out yesterday, the impact of this price weakness will be felt by giants such as BHP Billiton and Rio Tinto and Fortescue.
But it should be pointed out that prices remain high in historical terms and have not fallen to anywhere near the depressed levels seen in late 2008 or early 2009, although aluminium and nickel prices have been badly hit.
That was a point made yesterday by the head of BREE Professor Quentin Grafton who is also the agency’s chief economist.
"Despite the uncertainty surrounding the outlook for some European economies, Australia’s export volumes for most commodities have remained strong in the second half of 2011, while prices for many commodities have remained at historically high levels," he said in a statement with the latest forecasts.
In the latest estimates, BREE lifted its forecast for total iron ore exports in 2011-12 to 460 million tonnes, up 13% from its previous forecast of 449 million tonnes, because of recent expansions to mine and infrastructure capacity in WA.
But that won’t impact the value of exports, which will not rise as much as forecast in September when a 26% jump to a total value of $68 billion was forecast.
Now the increase has been cut back to 11% to $60 billion.
That implies lower prices compared to 2010-11.
The forecast for metallurgical (coking) coal exports was revised down; with from BREE now predicting exports will reach 150 million tonnes versus 156 million in its forecast on September 20.
But in September the value was estimated to rise 29% to $37 billion, now it’s been cut back to a 13% improvement to $34 billion, thanks to the lower exports and prices.
But there is some good news; gold will again do well, even if world prices have weakened in recent days to two-month lows as the eurozone crisis continues to upset markets.
BREE said gold would see a 45% jump in earnings to $19 billion; thermal coal (up 34% to $19 billion); crude oil and condensate (up 21% to $14 billion); and liquefied natural gas (up 15% to $12 billion).
Export volumes for the majority of minerals and energy commodities are forecast to increase including for metallurgical and thermal coal, iron ore, gold and copper.
"The increase in iron ore and thermal coal export volumes reflects recent expansions to mine and infrastructure capacity, while metallurgical coal exports are forecast to be higher as production conditions improve in Queensland," said Professor Grafton.
The Queensland coal industry was hit by the heavy rains and flooding in the March quarter and won’t be back to full capacity until the same time in 2012.
Besides the rise in iron ore exports, BREE says 2011-12 will see increases in export volumes for thermal coal (up 14% to 163 million tonnes); iron ore (up 13% to 460 million tonnes); gold (up 12% to 336 tonnes); copper (up 10% to 935 000 tonnes) and metallurgical coal (up 7% to 150 million tonnes).
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