Gold beats coal as iron ore drives export record
The strength of the iron ore prices is tipped to deliver a record $281bn in exports for the resources sector for the 2019-20 year.
The ongoing strength of the iron ore prices is tipped to deliver a record $281bn in exports for the resources sector for the current financial year 2019-20 despite the global trade wars and an international economic slowdown.
The gold and iron ore-led resources revival could also lead to an outsized contribution from the sector to the broader economy, as the resource sector looks to deliver growth in capital spending for the first time in almost a decade.
As gold overtook thermal coal in its contribution to resource exports, the Department of Industry, Innovation and science is tipping the nation to take China’s top spot as the world’s biggest producer within a few years as high prices encourage mothballed mines and new projects into production.
The federal government’s new chief resources economist, Russ Campbell, softened the Department of Industry’s December estimates for the 2019-20 financial year from $285bn in its June report to $281bn on the back of falls in the metallurgical and coal price, but still a record result for Australian miners and gas producers.
The figure is likely to fall the following year, according to Mr Campbell, to about $256bn as the iron ore price softens, as Brazil’s Vale increases its production and export, currently curtailed, and amid projections suggesting a slow return to growth for the broader global economy.
“The global industrial production slowdown and rising supply has seen the prices of Australia’s major resource commodity exports fall from the seven-year highs set in the September quarter 2019. Prices are likely to drift down further over the outlook period, due to rising supply,” the report said.
“Iron ore prices are drifting down from high levels, as supply steadily recovers. Coal prices have fallen as supply rises and demand drops. Base and precious metal prices have wavered (in opposite directions), on the changing likelihood of a resolution of US-China trade tensions.”
Minister for Resources and Northern Australia Matt Canavan said the department’s latest Resources and Energy Quarterly report showed the sector continued to be a powerhouse for the Australian economy.
“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 $1.6bn in export earnings in 2020–21, with the potential for multiples of this number by the end of the next decade,” he said.
This year’s surging iron ore price, caused by tailings dam failures in Brazil, has underpinned surpluses at the federal and state level, combining with the falling Australian dollar to deliver an extra $1bn into the coffers of WA Labor Treasurer Ben Wyatt, according the state’s mid-year financial review, delivered on Wednesday.
While benchmark iron ore prices still sit comfortably above $US90 a tonne, delivered to China, that trend is expected to reverse in 2020, according to the report. Iron ore sales are expected to deliver $84bn in export revenue to Australia this financial year, falling to $65.5bn in 2020-21, despite a likely lift in export volumes in the period.
That means the commodity has maintained its status as Australia’s most valuable, tipped to beat combined metallurgical and thermal coal sales — worth $56.4bn in 2019-20 and $54.4bn the following year — at a canter.
Gold is tipped to bring in $27.8bn this financial year — a fresh record — against $20.8bn for thermal coal, and $25.9bn the following period, compared to $18.8bn. In the 2018-19 financial year thermal coal sales were worth $26bn, against $18.7bn worth of gold sold.
And with gold price still comfortably above $2100 an ounce in local currency terms, the rush of exploration money into the sector, and a projected lift in production, could make Australia “the world’s largest gold producer by the mid-2020s”, the report says.
“Forward expectations suggest that mining companies generally expect investment over 2019–20 to lift by about 15 per cent, to an estimated $38 billion for the year. Actual spending for the September quarter 2019 — the first quarter of the 2019–20 financial year — is trending slightly above what previous estimates suggested,” the report says. “However, investment remains well below its recent peak of $95bn at the height of the LNG boom in 2012–13.”
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