Australia’s resource and energy export earnings are forecast to set a new record of $281 billion in 2019–20, according to the Australian Government’s latest Resources and Energy Quarterly publication.
The December 2019 edition of the report, released quarterly by the Department of Industry, Innovation and Science, shows earnings will recede back to $256 billion in 2020–21 following the record spike.
The figures represent a small downward revision by the Office of the Chief Economist on previous forecasts, but mask some noticeable changes in the outlook for a number of individual commodities.
The report, led by the federal government’s new Chief Resources Economist, Russ Campbell, highlighted growth in world trade contracted noticeably over 2019 as US-China trade friction increased.
It said the world slowdown has had flow-on effects across major commodities, with prices for metallurgical coal falling noticeably as steel production eases across the OECD and supply increases.
“Export values are forecast to decline from $44 billion in 2018–19 to $35 billion in 2019–20,” the report said.
“The market for thermal coal has also seen declining prices as a result of rising supply and soft demand. Export earnings are forecast to decline from $26 billion in 2018–19 to $21 billion in 2019–20. While seven large US coal producers have filed for bankruptcy over the past four months, Australian coal producers have benefited from the higher quality of our product and a weaker $A, but are still facing tougher conditions than earlier in the year.”
In contrast, iron ore producers are experiencing strong markets. Iron ore prices remain elevated despite a gradual recovery in production following the fallout from the Vale tailings dam collapse in Brazil. Iron ore exports are forecast to increase from $77 billion in 2018–19 to $84 billion in 2019–20. Conditions for global steelmakers remain difficult, with high iron ore prices squeezing margins and slowing automotive production weighing on steel demand.
The report indicated conditions are mixed for other commodities, with copper prices dropping noticeably and exports forecast to decline from $9.8 billion to $9.1 billion in 2019–20.
Australian gold prices have surged, leading local gold miners to re-open previously closed mines and gold forecast to become the country’s fourth largest export in 2019–20, increasing from $19 billion 2018–19 to $28 billion in 2019–20. On trend, Australia has the potential to become the world’s largest gold producer by the mid-2020s.
Despite further volume growth in 2020–21, a general softening in commodity prices is expected to bring export earnings down to $256 billion. This compares to a $258 billion forecast in the September 2019 Resources and Energy Quarterly.
Resources minister highlights industry success
Minister for Resources and Northern Australia Matt Canavan said the latest Resources and Energy Quarterly (REQ) showed the resource and energy sector continued to be a powerhouse for the Australian economy.
“The tremendous diversity of Australia’s resource and energy commodity exports has effectively helped to hedge the Australian economy against swings in global conditions,” Minister Canavan said.
“The record earnings are underpinned by rising export volumes of iron ore, LNG and gold. And tech-era commodities such as lithium are set to earn Australia $1.6 billion in export earnings in 2020-21, with the potential for multiples of this number by the end of the next decade.
“Our mining sector brought in a whopping 35 per cent of our GDP in the year to the September quarter 2019, and we are fending off the impact of challenging global conditions because of increasing demand for our commodities and falling world prices.
“The December REQ focuses on resource and energy commodity investment, which is also showing signs of rising due to a healthy pipeline of projects. The majority of these projects are brownfield expansions, but greenfield projects including the Adani Carmichael coal mine are notable inclusions.”
Minister Canavan noted it was the first time the Adani Carmichael mine has been included as a ‘committed’ project in the REQ’s Major Projects list, with the $2 billion Carmichael mine is now in construction and will produce 10 to 15 million tonnes of high quality thermal coal a year, ramping up to 27.5 million tonnes.
“More than $220 billion worth of projects, currently at the ‘publicly announced’ and ‘feasibility’ stages, could progress to the final investment decision stage in the early 2020s,” Minister Canavan said.
“LNG, iron ore and coal account for around $200 billion of the potential $240 billion of projects in the investment pipeline. Oil and gas extraction has been the largest contributor to mining industry value-added growth in the past few years, propelled by our rapidly growing LNG exports.
“While we are not expected to see a return to the levels seen during the last investment phase, there are some significant opportunities for Australia’s resources and energy sector. That underlines the importance of the Government’s agenda to pursue new investment in the sector, new export markets and reduce red and green tape.”