The current global downturn triggered by the COVID-19 pandemic is affecting commodities in a wide variety of ways, but Australia’s overall export outlook is still relatively strong, a government report said, adding that export earnings are estimated to set an all-time record in 2019–20.
The report by Australia’s Department of Industry, Science, Energy and Resources said gold – a safe haven in uncertain times – is set to be a strong performer, with prices surging to an 8-year high, and export earnings now on track to set a new record (of almost A$32 billion) in 2020–21.
“While normally vulnerable during downturns, iron ore earnings have been resilient in recent months, with a strong outlook for prices. The COVID-19 pandemic appears to have affected both sides of the iron ore market: demand disruptions have run up against supply problems localised in Brazil, where COVID-19-related lockdowns have derailed efforts to recover from shutdowns in the wake of the Brumadinho tailings dam collapse,” the report said, adding that the earlier forecast for Australian iron ore export earnings to top $100 billion in 2019–20 appeared to have been achieved.
COVID-19 has resulted in sharp price falls for other commodities, notably energy. The most significant impacts have fallen on oil producers, with the average Brent crude price expected to plunge by about 40 per cent in 2020. Many oil producers are likely to operate at a loss through much of 2020, with potentially significant implications for the high cost producers.
“Given the huge price swings induced by large changes in demand and supply, we have constructed scenarios to consider the relatively wide range of possibilities going forward. LNG prices, which were already in a downward cycle, have declined at an accelerated pace since the COVID-19 outbreak began. Coal prices, which fell sharply in 2019, declined further in the June quarter, and are likely to remain low through the rest of 2020,” the report pointed out.
Base metals have also been significantly impacted, with a sharp fall in vehicle output/sales affecting their outlooks.
According to the report, commodity markets overall remain subject to a combination of lower consumer demand and government-imposed lockdowns, which have set back production schedules.
However, an emerging wave of stimulus measures should offer a significant (though unpredictable) upside, as unlike downturns in previous decades, this downturn was not due to the bursting of excesses built up in the financial system or in equity markets. It also differs from the 1970s recessions, which helped contribute to stagflation and forced a wholesale restructure of the world’s energy system.
It has been imposed as a result of a health crisis, the report said, as governments around the world have shut down large parts of their economies to suppress the spread of COVID-19.
“On balance, our export earnings forecast has been revised down – but not by an alarming amount. Our previous forecast was for commodity earnings to reach $299 billion in 2019–20 and then fall modestly. In this edition, we estimate Australia earns $293 billion in 2019–20, and forecast exports of about $263 billion in 2020–21 and $255 billion in 2021–22. To give this better context: $293 billion is still the largest resource and energy export figure in Australian history, and $263 billion is third highest.,” the report said.