Iron ore slump to hit $39bn as slow EV sales growth hit nickel and lithium

Iron ore exports are projected to sink amid lower prices and China’s economic slowdown, as sluggish EV sales growth and oversupply pummels nickel and lithium.

An iron ore mine site at Port Hedland in Western Australia. Picture: Supplied

Australia’s iron ore export earnings are projected to plunge $39bn by 2025-26 amid lower ­prices and worsening economic conditions in China, as sluggish electric vehicle sales growth and oversupply pummels nickel and lithium.

After resources and energy ­exports peaked in 2022-23, new government forecasts reveal a slowdown is under way, with predicted earnings falling from $415bn in the last financial year to $372bn in 2024-25 and $354bn in 2025-26. As iron ore miners brace for prolonged weaknesses in China’s property market and steelmaking sector, the country’s iron ore cash cow is facing a volatile period after prices fell to two-year lows in August.

Alarm over falling commodity prices and export earnings comes as Jim Chalmers on Monday reveals a 2023-24 surplus of $15.8bn in the government’s final budget outcome, which is $6.4bn higher than predicted in the May budget.

While bumper resources exports and tax takes from miners have helped federal and state governments bank surpluses in ­recent years, the Treasurer has warned that lower tax revenue and commodity prices will put a squeeze on future budgets.

Dr Chalmers, who met with senior Chinese officials in Beijing last week, claimed his second surplus “is entirely due to lower spending”.

Despite expectations iron ore volumes will grow to 930 million tonnes in 2025-26, lower prices are forecast to chip away at iron ore export earnings, which are forecast to fall from $138bn in 2023-24 to $107bn in the current financial year and $99bn in 2025-26.

“Iron ore price volatility continued in the September quarter – with the price falling to two-year lows in August before regaining some ground – leaving prices down by around a third since the start of 2024. The falls reflect weakening steel demand in China, strong growth in iron ore supply and high stockpiles,” the Department of Resources’ September resources and energy quarterly report says.

With Chinese-backed nickel production in Indonesia fuelling global oversupply, the government report said Australian nickel export earnings would fall by over half to $1.4bn in 2024-25 and decline further to $1bn in 2025-26.

“Nickel consumption growth in batteries is expected to slow, driven by slowing EV sales and improvements in nickel-free chemistries. World demand for nickel remained robust in the June quarter 2024, however weakness in stainless steel production and EV sales means growth may slow for the rest of the year,” the report says.

Lithium export earnings are expected to fall by $1.7bn to $8.2bn in 2025-26, driven by weaker prices and slower than expected take-up of EVs in the US and European Union.

“Global EV sales growth is forecast to slow to 17 per cent in 2024, compared to an average of 46 per cent a year between 2018 and 2023. EV adoption faces challenges from rising trade barriers and supply chain concerns in an environment of ongoing geostrategic competition.

“The required reorientation in supply chains is likely to slow EV cost declines in major vehicle markets around the world.”

After Tanya Plibersek recently came under fire for stalling McPhillamys’ Blayney gold mine, the Department of Resources is predicting record gold prices will remain elevated. With gold prices increasing by 30 per cent since January, the government expects higher returns on gold exports, which hit a record $32.9bn in 2023-24.

With Peter Dutton pushing to unlock more uranium mining in Australia to power a domestic nuclear industry and grow exports, government forecasts show uranium export earnings will hit $1.5bn in 2025-26. Demand for more energy sources in India and China, which is currently building 30 reactors, is fuelling long-term interest in Australian uranium stocks. Following record high international gas prices in 2022, Australian LNG export earnings are forecast to fall from $69bn to $60bn by 2025-26, as new supply from the US and Qatar drives down global prices.

Metallurgical coal exports, which are also being hit by the slowing Chinese economy and property market, are benefiting from increased demand from India. Thermal coal exports have held-up due to higher than expected demand from China, sanctions targeting Russian coal and hotter weather across Asia. Thermal coal prices are projected to gradually decline from $US135 a tonne in 2024 to $US113 a tonne by 2026.

Resources Minister Madeleine King acknowledged slower global growth, increased supply of key commodities and lower prices would see export earnings fall from record highs.

“Despite reductions in some bulk commodity prices, there have been record gold prices and ongoing gains in iron ore export volumes. The resources and energy sector continues to underpin Australia’s economy and support more than a quarter of a million direct jobs,” she said.

Ms King said the department’s forecasts were predicting a higher demand for resources that “are essential for low-emissions technologies such as copper, aluminium and lithium”.

“Lower prices for critical minerals underline the need for government support for our critical minerals sector,” she said.

Ms King said new partnerships with the US, India, South Korea, Japan and Britain, alongside the government’s critical minerals production tax incentive, would “help create jobs and prosperity for future generations”.