Australia’s resource and energy export earnings are forecast to reach a record $230 billion in the year to June, driven by higher iron ore and coal prices and still growing LNG export volumes.
However, the Department of Industry, Innovation and Science March quarter’s Resource and Energy outlook issued yesterday that it then expects export earnings to decline slightly from current levels in the year to June 2019, before levelling out at about $212 billion to $216 billion a year from 2019-20 onwards.
The report forecasts that LNG export receipts will overtake those for metallurgical coal in 2017-18.
In the Foreword to the quarterly report the authors however do admit to have been negative in recent years about the outlook.
“Commodity prices rallied two years ago and to the surprise of many forecasters, including ourselves, they are yet to unwind a substantial part of these gains.” the report started yesterday.
But from now on they expect that “over the next few years, the prices of iron ore and metallurgical coal would be weighed down by increasing supply and declining steel production in China.”
And the price of Australian LNG, set by the oil price, “is expected to increase modesty, constrained by price-sensitive shale oil production in the US, and sluggish growth in world oil consumption.”
The ramp up in LNG export volumes, driven by the mining investment boom, is expected to have run its course by the turn of the decade.
“The last of Australia’s LNG projects is scheduled for completion by the end of the year, while growth in iron ore export volumes will slow from 2018-19.”.
“The story is similar for other key resource and energy export commodities, including coal, gold and several base metals.
“In this sense, 2020 will mark the end of the remarkable growth phase of the Australian resources and energy sector,” chief economist Mark Cully said.
Iron ore is our major commodity export and the quarterly says:
- Australia’s iron ore export earnings grew 16% to $63 billion in 2017, driven by high prices and growth in export volumes (which rose by 2.5% to 828 million tonnes).
- Australia’s iron ore export earnings are projected to fall to $55 billion by 2022–23, as a result of projected price declines.
- The FOB Australia iron ore price is projected to decline to US$53 a tonne (in real terms) in 2023, as a result of falling steel production in China and a well-supplied seaborne market.
- “The key uncertainty underpinning the outlook for the iron ore price is the pace and magnitude of the decline in China’s steel production, which in turn, largely depends on government policies,” the outlook says.
On metallurgical (steelmaking) coal, the report notes:
- Metallurgical coal prices have stayed at relatively high levels in recent months, as disruptions to Australian export supply continue to leave the seaborne market short. Prices are likely to remain well above the US$100 a tonne mark, and hence above the lows of 2015–16.
- The prospects for metallurgical coal demand over the medium term are firm. Strong growth in emerging Asia will drive strong growth in steel production and hence metallurgical coal demand.
- Supply growth will generally keep up with demand, though the ongoing rationalisation of the Chinese coal industry poses a risk to world supply.
- Export earnings are forecast to be almost $40 billion in 2017–18, before then declining. Earnings should maintain $29 billion over the forecast period.
While on thermal coal, the report says:
- Thermal coal prices have edged up further in recent months, as supply concerns and strong demand keep buyers keen to snap up cargoes.
- Going forward, strong growth in demand in Emerging Asia will largely offset softer demand in the OECD. Western nations appear likely to continue to push to phase down their thermal coal use in favour of renewables and gas, the latter both for heating and power generation.
- Supply growth will be dominated by Australia, Russia and the United States, but investors will only reluctantly fund new capacity.
- Australian export earnings are expected to hit a record $22.9 billion dollars in 2017–18 before declining to
- $17.1 billion in 2022–23.
And on LNG, the report forecasts:
- The real value of Australia’s LNG exports is forecast to increase from $23 billion in 2016–17 to $39 billion in 2022–23, driven by higher export volumes and, to a lesser extent, higher prices.
- LNG is forecast to overtake metallurgical coal as Australia’s second largest resource and energy export in 2018–19.
- The completion of the final three Australian LNG projects under construction will underpin strong growth in export volumes and bring total export capacity to
- 88 million tonnes.
- LNG contract prices — at which most Australian LNG is sold — are projected to increase gradually, in line with oil prices.
