Australia’s resource and energy exports are on track to set a record high of $252 billion in 2018–19 up from the previous record of $227 billion set in 2017–18, according to the Department of Industry, Innovation and Science’s (DIIS) September 2018 Edition of the Resources and Energy Quarterly.
Mark Cully, Chief Economist at the DIIS said the combined effect of a weaker exchange rate outlook and persistent strength in the price of some resource and energy commodities — particularly thermal coal and oil — led the department to revise their resource and energy export forecasts.
“We now expect Australia’s resources and energy export earnings in 2018–19 to reach a new high of more than a quarter of a trillion dollars,” Mr Cully said.
Strong world demand and some concerns over supply have helped keep the prices of oil and thermal coal relatively high over the past quarter, boosting the prospects for Australian export earnings over the outlook period.
The report also stated that bulk commodity prices are likely to decline over the outlook period, as the global supply of these commodities improves.
“These price declines will more than offset the impact of growth in export volumes during that period, leading to a modest decline in export earnings in 2019–20,” Mr Cully said, “export earnings should still be well above 2017–18 levels, however, reflecting the tightness of resource and energy commodity markets and the benefits of rising Australian commodity production.”
The report also highlighted two main risks to the work economic outlook. The first is that there is some risk to the strong outlook for the world economy and subsequently, commodity demand. Escalating trade tensions between the world’s two largest economies — the United States and China — have raised fears that economic growth in China might slow significantly, with flow-on effects for that country’s commodity demand.
The other major risk is (notwithstanding the recent significant rise in the US dollar) that the US economy may soon run into capacity constraints, sparking a sharper than expected rise in US inflation.
“This may force the US Federal Reserve to raise interest rates more than expected, and these rate rises could hurt US economic growth and have ripple effects across the rest of the world economy,” Mr Cully explained.
Lastly, the report noted that the rapid prominence of electric vehicles could be attributed to the rising interest in lithium (a relatively minor commodity for decades). Future editions of the Resources and Energy Quarterly will include a regular lithium chapter, reflecting its growing importance as an Australian mineral export.
Here is a brief summary of the report:
- Australia’s resource and energy exports are on track to set a record high of $252 billion in 2018–19 up from the previous record of $227 billion in 2017–18.
- Export values are being underpinned by a weaker Australian dollar and strong prices for several key commodities.
- A robust steel market in China boosted iron ore demand during the September quarter, particularly for the higher ore grades.
- Stronger steel production also stabilised metallurgical coal prices after a fall in the June quarter.
- Thermal coal prices were stable over the September quarter, off the back of strong demand from China. However, prices for base metals lost ground amidst US-China trade tensions.
- Looking out to 2019–20, growing bulk commodity supply and easing prices are expected to lead to a modest decline in commodity earnings to $238 billion.
- Solid demand for high energy Australian thermal coal is expected to persist in the near-term as China tries to limit air pollution and restricts imports of low energy coal.
- Oil prices are likely to lift as the US prepares to reimpose sanctions on Iran and as Venezuelan oil production declines.
- Prices for lower grades of coal and iron ore likely to continue to decline, but other metals such as copper are expected to see a price rebound as market fundamentals re-assert themselves.
The full September 2018 Resources and Energy Quarterly can be found here.