Iron ore’s $100bn export boom
Iron ore is projected to be Australia’s first commodity to top $100bn of export earnings in a single year.
Iron ore is projected to be Australia’s first commodity to top $100bn of export earnings in a single year, as the nation’s biggest exporters shrug off a global market meltdown to cash in on Chinese demand, government forecasts predict.
The steelmaking raw material has continued to trade near $US90 a tonne despite the coronavirus sparking a broader market rout. Its high prices, along with a boost in supply to 877 million tonnes, could see Australia reap a 28 per cent annual lift in iron ore earnings to $101bn in 2019-20.
Longer-term iron ore volumes from Australia could sail just under the one billion tonne level by 2024-25, although an expected retreat in prices over the next few years will see earnings decline to $69bn by that stage.
Australia’s combined mining and energy exports are set to rise to $299bn in 2019-20, from $281bn, with a lower than expected Australian dollar and increases in iron ore and gold outweighing softer earnings from coal and LNG.
While the official government forecasts warn the earnings estimates could change due to the coronavirus pandemic, it still expects demand to rebound in China, Australia’s biggest commodity buyer.
“The number of new cases has now peaked in China, and it seems like that, as factories restart, Chinese activity will quickly rebound,” the Department of Industry, Science, Energy and Resources said in its report for the March quarter. “It is assumed that the overwhelming majority of work places in China will be fully operational by the end of June 2020.”
Annual GDP growth in China will “drift lower”, remaining above 5 per cent, although efforts by multinationals to cut their reliance on the world’s biggest economy in their supply chains could see forecasts change.
Iron ore stocks at ports in China are running at about 120 million tonnes, down from record highs of just over 160 million tonnes two years ago, with Australia’s big three exporters Rio Tinto, BHP and Fortescue Metals Group shipping strong volumes.
Challenges remain for other commodities more exposed to market volatility.
The oil price crash, and knock-on effect on the LNG sector whose prices are linked to crude, will see the value of Australia’s LNG exports fall to $49bn in 2019-20, from $51bn a year earlier, and then fall to $44bn in 2020-21.
“While Asian LNG spot prices are forecast to recover from the current record lows, ongoing overcapacity in global LNG markets is expected to constrain the extent of any price recovery over the next two years,” the report noted. The government forecaster expects oil prices to average $US60 a barrel in 2020, which may prove optimistic with the recent Saudi-Russia supply war seeing prices plummet to just $US30 a barrel.
Australia is also on track to overtake China as the world’s largest gold producer in 2021 as high prices boost production. The value of gold exports is forecast to soar to $26bn in 2019-20 on higher prices and volumes before declining to $21bn in 2024-25.
“The low interest rate environment is likely to continue to be a major factor driving institutional investment demand for gold. With real interest rates remaining low in historical terms, the opportunity cost of holding gold is low, raising its attractiveness as an investment asset in times of uncertainty,” the report said. “The gold price could exceed expectations in the short term if the COVID-19 outbreak turns out to have a larger than expected adverse impact on the world economy.”
Resources Minister Keith Pitt said he was focused on ensuring the commodities sector continued to thrive. “The best thing that we as a government can do is to remove any red and green tape that will stifle investment and ensure that our policy settings and actions for managing challenges like COVID-19 are right,” Mr Pitt said.