Weaker prices for iron ore and LNG will be the major drivers of a sharp fall in the value of Australian resource exports in 20120-21.
According to the forecasts from the chief economist of the Federal Department of Industry, the value of resource exports will be $34 billion down on the record $290.4 billion exported in 2019-20.
All this suggests a weak June year for the resource sector, although producers of copper and nickel should still do well because of the continuing rise in renewables and electric vehicles.
That record was driven by higher iron ore, gold and LNG exports (the latter up to March when COVID-19 hit demand in Asia). Iron ore exports jumped to an all-time high of $102 billion in the year to June.
But that is forecast to dip to $97 billion in 2020-21, still a near-record amount – and help drop the total to $256 billion in the 12 months to June 30.
The outlook for 2021–22 for a smaller fall just $4 billion to $252 billion – but that forecast is a very rough estimate because of the continuing impact on demand for commodities thanks to the impact of the COVID-19 pandemic and lockdowns.
In fact, the impact of lower prices is already being seen in our trade performance. ABS data released on Friday showed the trade surplus in August was $4.6 billion. That’s a fall of 60% from the all-time high of $10.6 billion in March, just as the pandemic was hitting Australia and Asia.
Global iron ore prices have been held up by strong demand from China combined with lower supply from Brazil the start of 2019, where pandemic-related workplace restrictions have derailed efforts to recover from shutdowns in the wake of Vale’s Brumadinho tailings dam collapse on January 25, 2019.
On fact the price of the main iron ore indicator price – the Metal Bulletin’s index for 62% Fe fines delivered to northern China peaked at $US130.17 a tonne on September 2 and was trading around $US115 a tonne last weekend.
Gold prices helped with their surge towards $US2000 an ounce in the closing months of 2019-20 and then topping that level in August, only to fade back under that important price level in the past week.
But copper, silver, lead, zinc, and nickel are doing better, as the September quarter report observed:
“Gold has lifted even higher since our last report, and export earnings are on track to set a new record (of about $31 billion) in 2020–21. Base metals have recovered further, and the prices of copper and nickel are now back to pre-COVID-19 levels.
“Both have relatively constrained long term supply prospects against a backdrop of healthy demand, especially for use in new age technologies.”
“Further out, the price is likely to decline as equity markets recover more broadly and as bond yields rise,” the Office of the Chief Economist said in its latest figures.
The prices of energy commodities are recovering, as the COVID-19 driven whack to global recovers slowly and supply cuts cause Attempt to bring the market back to balance.
The oil price should recover further but seems likely to be capped at the $US60 a barrel mark as American producers re-enter the market.
In fact prices for Brent and West Texas Intermediate are struggling to break free of the $US40 a barrel level at the moment and demand looks like remaining under 2019’s record 101 million barrels a day for the next couple of years.
The value of LNG exports is tipped to dip sharply this financial year, as three-quarters is sold under contract at prices linked to the oil price.
But there is some upside’ “Spot LNG prices are recovering strongly as (mainly US) supply is cut back and demand picks up,” the forecast notes.
And thermal coal prices remain weak due to excess supply and power utilities switching to gas but the report sees some upside emerging:
“Coal prices have steadied at low levels, and are likely to edge higher through 2020–21 as supply cuts and rising demand depletes inventories.
Metallurgical coals have started rising after dipping under the iron ore price for most of August. That’s because steel demand and output is recovering outside of China.
“The forecasts have notable risks on both sides: on the downside, a COVID-19-induced, protracted economic slump in the US would hurt Asia (and thus Australia),” the Office of the Chief Economist said.
“An upside risk is potential for a successful COVID-19 vaccine and/or treatment that would boost business and consumer confidence, and lift economic activity once a sufficient number of vulnerable people have been inoculated.”
