Australia expects iron ore export revenues to fall before rising – report

Australia’s revenues from iron ore exports are expected to fall in 2015–16, the second consecutive year, due to falling prices, a government report said.

However, a combination of increased export volumes and slightly higher prices is projected to result in iron ore export earnings increasing over the remainder of the projection period, to reach $72 billion (in 2015–16 dollar terms) in 2020–21, said the Resources and Energy Quarterly March 2016.

“This represents a 29 per cent increase in export earnings relative to 2014–15, although earnings are expected to remain 7 per cent below their 2013–14 peak,” the report added.

Expected closures of high cost mines and commissioning of new low cost capacity is projected to result in Australia and Brazil continuing to increase their share of international trade in iron ore over the medium term.

The price of iron ore averaged US$36 a tonne in the December quarter 2015, the lowest since 2006. Prices are projected to be higher over the projection period, but remain well below levels recorded during the height of the mining boom.

According to the report, ehile prices briefly rebounded to US$61 a tonne in early 2016, increasing global supply coupled with lower demand from China’s steel sector is forecast to result in prices softening by end of the year to average US$45 a tonne in 2016.

At current prices, a number of high-cost producers—mostly outside of Australia—are making large losses on each tonne of iron ore produced, it said, adding a sustained period of lower prices over the projection period is expected to result in the closure of high-cost capacity as the financial losses of these companies begin to accumulate.

Although these closures will provide some support to prices, new low cost capacity being developed, particularly in Australia and Brazil, should limit any price increase. If high cost capacity takes longer to be closed than anticipated, or if costs at new or existing mines can be reduced further, prices may stay lower for longer, the report said.

 It said that while global iron ore demand is projected to remain relatively flat, continued displacement of domestically produced iron ore in China with seaborne iron ore is expected to result in a modest increase in international trade. Reflecting this, global iron ore trade is projected to increase by 1.3 per cent a year between 2015 and 2021, to reach 1.6 billion tonnes.

“Export growth is projected to come almost entirely from Australia and Brazil. The share of world trade coming from these two countries is projected to increase from 52 per cent and 25 per cent in 2015 to 58 per cent and 31 per cent in 2021, respectively. Import growth is projected to largely come from China and India and, to a lesser extent, the United States and Japan,” the report forecast.


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