Australia says resources and energy export earnings to decline over next two years as prices fall

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Photo courtesy: Rio Tinto; Copyright © 2017 Rio Tinto.

Australia’s resources and energy export earnings, which grew rapidly by 25 per cent to an estimated $205 billion in 2016–17 are forecast to decline marginally until 2019 as declining prices are expected to more than offset the impact of rising export volumes.

The Department of Industry, Innovation and Science said in its latest quarterly report on the resources and enery sectors that the rise in export values in 2016–17 was largely due to an unexpected spike in metallurgical coal and iron ore prices.

These steel-making commodities account for over half of Australia’s resources and energy exports by value, Chief Economist Mark Cully wrote.

He said steel mills in China — the largest consumer of Australia’s iron ore and one of the largest for metallurgical coal — continued to increase output and helped drive steel making commodity prices higher in 2016–17. Metallurgical coal prices were also propelled higher by the now partially-reversed restrictions placed on coal mining operations in China and several temporary disruptions to supply.

Export volumes for the major base metals declined sharply in 2016–17, reflecting a combination of mine and refinery closures, as well as temporary supply disruptions. The drop in base metals production is forecast to turn around modestly in the next two years. This reflects a small number of new mines and the impact of the ramping up of other existing mining operations.

Downward pressure on prices

According to Cully, LNG is forecast to add $14 billion to Australia’s resources and energy exports over the next two years, while declining coal and iron ore prices are expected to detract $11 billion and $9.8 billion from export earnings, respectively.

“Moderating global demand growth, in addition to growing low-cost supply, is putting downward pressure on resource and energy commodity prices, particularly for iron ore but also for metallurgical coal. Iron ore prices have already declined noticeably, while metallurgical coal prices — held up in the June quarter by supply disruptions attributed to Cyclone Debbie — are also falling back,” he said.

LNG is forecast to be the largest contributor to export volumes growth, with several major projects still yet to be completed or to reach full capacity, Cully said said, adding that export volumes for metallurgical coal are also expected to grow strongly in 2017–18, as stockpiles built up in the wake of Cyclone Debbie are wound down.

“However, investment in Australia’s mining sector has declined rapidly in recent years — and is expected to continue to do so. This is already evidenced in the sharp decline in exploration expenditure, and has contributed to a reduction in employment in the mining industry as a whole. Growth in export volumes 2017–18 and 2018–19 are forecast to be weighed down by falling investment, although the impact of lower investment in the industry will be more apparent beyond the two year outlook horizon.”

 

 

Prashant has worked in the publishing industry for 17 years. His keen interest in commodities developed while working for organisations such as like Thomson Reuters, Wolters Kluwer & McGraw-Hill eventually brought him here. In his free time, Prashant consults with businesses in the digital space.

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