Anticipated low oil and gas prices over the next two years will limit growth in LNG export earnings of Australia, but the slack is expected to be picked up by higher earnings from coal and iron ore, a government report said.
“Unfortunately, the high prices that have bolstered Australia’s resources and energy export earnings in 2016–17 and (in early) 2017–18 are not expected to last. The combination of both slowing demand growth from China’s steel sector and increased global supplies, are expected to lower export unit values in 2018–19,” Mark Cully, Chief Economist of the Department of Industry, Innovation and Science, said in a report.
Buoyant prices for steel-making commodities and thermal coal, and increased LNG export volumes, are expected to see Australia’s resource and energy export earnings increase by 2 per cent in 2017–18, to a record $211 billion, Cully added.
Rising LNG volumes, thanks to a new terminals on the country’s east and west coast were expected to underpin Australia’s export earnings at a time when prices of traditional mining exports such as iron ore and metallurgical coal are easing.
However, the outlook for LNG prices has deteriorated in line with expectations for oil prices, to which LNG prices are linked, Cully added.
“The OPEC production agreement has not been as successful as many expected in driving oil prices higher,” he said.
Average LNG prices at Australian ports declined from $9 a gigajoule in June to $8.20 a gigajoule in July, the report said, quoting latest available data.
Unfortunately, the high prices that have bolstered Australia’s resources and energy export earnings in 2016–17 and (in early) 2017–18 are not expected to last. The combination of both slowing demand growth from China’s steel sector and increased global supplies, are expected to lower export unit values in 2018–19, Cully poined out.
Overall, the value of Australia’s resource and energy exports is forecast to fall by around $10 billion in 2018–19 to around $201 billion.
The report expects iron ore prices to average $US64 a tonne in 2017 but decline to an average of $US50 a tonne in 2018 and $US49 a tonne in 2019.
It appears that some resource commodity markets are, and will be in the next year at least, experiencing more intense seasonality: Chinese steel and aluminium makers stepped up their purchases of raw materials in the June–August period, as they prepared for the curtailment of a very significant part of Chinese production in the approaching winter, Cully said.