The green minerals boom is transforming Australia’s export performance faster than many analysts had forecast.
While exports of oil, gas and coal (especially thermal coal) grabbed the business headlines, the pace of growth in revenues for the likes of copper, nickel and especially lithium has been an eye opener, according to the federal government’s September resource and energy quarterly released this week.
The quarterly revealed that exports of copper, nickel and lithium are expected to be worth $33 billion this financial (2022-23) year, double the value in 2020-21.
“Lithium export earnings are forecast to increase by more than tenfold in just two years from $1.1 billion in 2020–21 to almost $14 billion in 2022-23 before easing to around $13 billion in 2023-24,” it said.
That rise will play a big part in the quarterly’s new, higher estimates for resource and energy export revenues to reach a record $450 billion this financial year, a $28 billion rise on last financial year’s record.
Exports of iron ore, traditionally the really dominant driver of export income, is now back to being just ‘dominant’ with an expectation in the quarterly that revenues will edge down from $134 billion to $119 billion this year.
Thermal coal, which has surged in price, is expected to be worth $62 billion this year after $46 billion in 2021-22, but metallurgical coal exports are forecast to slip to $58 billion from $66 billion.
The quarterly said LNG exports were tipped to hit $90 billion from $70 billion due to the rise in global prices.
“Earnings from these commodities are likely to fall back towards pre-COVID-19 levels after 2023–24, as supply improves,” forecasters predicted.
The record $450 billion estimate for the year to June 2023 is forecast to ease 16% to $375 billion in the 2024 financial year as “world supply responds to high prices amidst a soft demand backdrop”, the forecast explained.
That would still be the third highest reported for the country. The September 2021 quarterly forecast revenues in 2021-22 would ease but that prediction was brought undone by Putin’s invasion of Ukraine and then western sanctions on Russian exports which drove energy, grains and metal prices higher from late February to June 30.
“Driving the current surge in resource and energy export earnings is a spike in energy prices and Australian dollar weakness against the US dollar,” the quarterly’s authors confirmed.
“Energy prices are elevated largely because of a looming drop in exports of gas, coal and oil by Russia, one of the world’s largest energy exporters. Gas, LNG and thermal coal prices are at record levels, as Northern Hemisphere nations try to build stockpiles ahead of winter.
“Drought in large parts of Western Europe, the United States and southern China has exacerbated energy shortages. High energy prices have caused the curtailment of energy-intensive metal smelting/refining, especially in Western Europe.
“These output cuts have partly offset the impact of weaker metal demand (induced by a sharp rise in energy costs on consumers and slower global GDP growth).
Since the June 2022 edition of the Quarterly, metallurgical (coking) coal prices have fallen sharply, but the price of thermal coal and other energy commodities prices have remained extremely high.
“Bans on Russian exports of oil and other fossil fuels by most advanced Western countries are progressively taking effect. By early 2023, the market for Russian exports will have shrunk noticeably: transport and infrastructure constraints will likely prevent a full diversion of some of these energy commodities from the West to nations such as China and India.
“The net result is a drop in world energy supply, as some Russian output becomes stranded.
“We thus expect the prices of energy commodities to remain relatively high over the outlook period. High prices are likely to accelerate the medium/long term push towards the adoption of low emission technologies.
“Since our last report, the Chinese Government has taken further action to support China’s economic growth. The economy has been impacted by COVID-19 lockdowns in some major cities, stresses in the property market and drought.
“The consensus amongst analysts is that China will not reach the government’s 2022 growth target of 5.5%. Further measures to boost growth may occur ahead of the Chinese Communist Party’s 20th National Congress in mid-October.”
The IMF forecasts world GDP growth of 3.2% in 2022 and 2.9% in 2023, with China forecast to grow by 3.3% in 2022, rising to 4.6% in 2023. It is possible that inflation is peaking in most major economies; if inflation rates fall back towards target levels, monetary action may taper over 2023.
The La Niña weather pattern is returning and likely to combine with a strongly negative Indian Ocean Dipole which would result in wetter-than-normal conditions in eastern Australia over spring/summer, the quarterly said.
That could mean that with Northern Hemisphere economies trying to re-build energy inventories, any disruptions to Australian coal supply (due to possible flooding) will boost prices or maintain them at existing near record levels for thermal coal (currently just above 4US400 a tonne according to the Newcastle Index price).
“The risks to the forecast for Australia’s export earnings in 2022–23 and 2023–24 are skewed modestly to the downside,” the forecasters said.
“Markets appear to have priced in the loss of some Russian resource and energy commodity output from world supply. Should world supply hold up better than expected and/or demand prove weaker than expected, our exports could suffer.
“New outbreaks of vaccine-resistant COVID-19 strains also pose risks to the outlook. Especially so if they occur in China, where small outbreaks are currently being met with aggressive suppression measures.”
