In the game of wealth generation, Australia’s resources and energy sectors are star players.
Every quarter, The Department of Industry, Science, and Resources releases a report outlining the industry’s current state and future projections.
Contributing a substantial 13.4% to the country’s Gross Domestic Product (GDP), the performance of Australia’s mining sector remains in the spotlight as a real lynchpin in the domestic economy.
The latest report is now out, and in this article, we’ll explore its findings across various commodities and broad global trends.
So, without further ado, let’s explore the details!
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Export Forecast Summary
At the highest level, Australian resource and energy exports are indicated to be $417 billion in 2023–24.
Looking ahead to the next financial period, in 2024–25, those same export earnings are predicted to drop to about $369 billion, affected by deepening bulk commodity price declines and a rise in the AUD Vs the USD.
Throughout the five-year outlook, up until 2029, export values are expected to balance out as price declines slow and the AUD’s value improves modestly.
Globally, economic growth remains on shaky ground, weighed down by relatively high interest rates.
However, despite a decline in Chinese construction statistics, the country, an enormous resource consumer, has invested strongly in infrastructure and manufacturing, helping to offset the generally softer demand for resources and energy commodities.
While Chinese demand will continue to influence commodity markets over the next half-decade, Indian economic growth, the strongest in the world, is coming to the fore as a rising consumer of resources and energy.
Commodity Breakdown
Australian Steel
High inflation and interest rates have influenced world steel demand, leading to weaker industrial output.
However, growth is expected to stabilise and increase in ex-China global manufacturing in 2024, with further stimulus-related infrastructure projects underpinning more robust steel demand.
World steel production remained flat in 2023 but is expected to grow by almost 2% in 2024 and 2025, reaching 2.1 billion tonnes by 2029.
The new capacity will support growth in Asia, North America, Europe, and the Middle East.
Iron Ore
Global iron ore demand is expected to rise until 2029 despite falling demand from China.
The emerging markets in Asia and the Middle East will offset this decline.
Prices fell after China restocked its supplies but strengthened in early 2024 due to positive sentiment linked with policy stimulus in China’s economy.
Australian iron ore export volumes increased by 1.1% (year-on-year) to 893 million tonnes and are forecast to rise by 1.6% annually until 2029.
Metallurgical Coal
Global demand for metallurgical coal rose by 8% to reach 317 million tonnes in 2023, driven by China and India.
China upgraded its rail links, leading to a rise in coal flows from Mongolia. India also became the largest importer of seaborne metallurgical coal.
Prices are expected to fall from US$277 per tonne in 2024 to US$185 by 2029. Export earnings are expected to decline to $56 billion in 2023-24 before stabilising around $40 billion in the second half of the outlook period.
Export volumes are expected to increase to 175 million tonnes by 2028-29 as mines in New South Wales and Queensland ramp up.
Thermal Coal
Thermal coal markets remained stable in Q1 2024.
The 6,000 kcal Newcastle price averaged $127/tonne this year, compared to $135/tonne in Q4 2023.
Seaborne thermal coal imports will reduce in the short term due to high inventories and decreased demand from China.
A possible La Niña weather event could disrupt the coal supply. In real terms, thermal coal export earnings will fall from $36bn to $21bn by 2028-29.
Export volumes are expected to remain steady at around 205 Mt per year throughout the outlook period.
Natural Gas
Gas markets have stabilised in recent quarters, but the long-term effects of the Russian invasion of Ukraine may slow growth.
Gas consumption is expected to rise by an average of 1.6% annually until 2029, down from 2.5% between 2016 and 2021.
Australia’s LNG export revenues will decline from $72 billion in 2023–24 to under $45 billion by 2028–29, with exports around 80 Mt annually.
Gas prices have slightly risen due to conflicts but may ease from $16/MMBtu in 2024 to under $11/MMBtu by 2029, thanks to new supplies from the US and Qatar.
Lithium
Lithium export revenue has been revised downwards as EV demand slows, causing prices to fall faster than expected.
Australia’s lithium export earnings are expected to drop from A$21 billion to A$9 billion between 2022 and 2029.
However, rising export volumes and value-added processing can offset the impact of lower prices.
Due to the EV boom, global lithium demand is set to more than double between 2023 and 2029, but new battery technologies could reduce lithium usage.
Despite this, large producers like Australia and China and new emerging producers continue to have significant project pipelines, allowing global lithium supply to keep pace with rising demand.
Uranium
Uranium export earnings forecasts have been significantly revised since March 2023.
Due to a stronger price environment, real export earnings for 2027-28 have increased from $1,152 million to $2,035 million.
Uranium prices rose due to supply disruptions and renewed interest in nuclear power.
They doubled over 12 months and peaked at US$106 early in the March quarter.
Prices are expected to settle at US$109 per pound (in real terms) by 2029.
Due to price and volume growth, Australian export values are projected to grow from A$0.8 billion in 2022-23 to A$2 billion by 2028-29.
Summary
While we’ve covered just a snapshot of Australia’s export commodities here, the forecast is mixed.
Some considerable headwinds, combining global conflict with slowing growth, are on the horizon for the sector.
Slowing demand for resources and energy in China can impact global markets, particularly Australia’s, like no other force.
However, as China ebbs for now, India has begun to rise as a manufacturing powerhouse on the global stage, a role that it will fill further over the coming five years.
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References:
https://www.industry.gov.au/publications/resources-and-energy-quarterly-march-2024
https://www.energy.gov.au/energy-data/australian-energy-statistics/energy-productivity
