The December 2019 edition of the Resources and Energy Quarterly was released today by the Department of Industry, Innovation and Science.
The report shows that Australia’s resource and energy export earnings are forecast to set a new record of $281 billion in 2019–20, before easing to $256 billion in 2020–21. These represent a small downward revision on the previous forecasts, but mask some noticeable changes in the outlook for a number of individual commodities.
The resource and energy sector has continued to set records despite facing increasing global headwinds. Growth in world trade contracted noticeably over 2019 as US-China trade friction increased. The contraction contributed to global industrial production growth slowing almost to zero, with monetary policy shifting towards a more stimulatory stance in many countries as central banks cut interest rates.
The world slowdown has had flow-on effects across major commodities. Prices for metallurgical coal (used to create steel) have fallen 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 market for thermal coal (used to generate electricity) 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.
Conditions are mixed for other commodities. Copper prices have fallen noticeably, with exports forecast to decline from $9.8 billion to $9.1 billion in 2019–20. In contrast, Australian gold prices have surged, leading local gold miners to re-open previously closed mines. Australian gold exports are forecast to become our fourth largest export in 2019–20, increasing from $19 billion 2018–19 to $28 billion in 2019–20 and 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. The resolution of trade tensions between major economies would brighten the resource and energy commodity outlook considerably.
This edition of the Resources and Energy Quarterly includes the annual survey on major investment projects in the resource and energy sectors. The 2019 Major Projects survey shows resource and energy commodity investment has recently stabilised after years of decline — as the huge LNG projects in Queensland were completed — with emerging prospects for a recovery from a healthy pipeline of projects.
For more information and to access the report, visit Resources and Energy Quarterly - December 2019.
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