Australia’s resources export values are expected to hit $278 billion in 2018–2019, a “sizeable upward revision” due to an improved outlook for iron ore, according to forecasts by chief economist Mark Cully.
The Australian Government’s Office of Chief Economist report, which provides a five-year outlook for Australia’s major resource and energy commodity exports, credited recent and significant supply shocks in commodity markets due to the sharp drop in iron ore exports from South America.
The largest of these follows the collapse of Vale’s Brumadinho mine tailings dam in Brazil in January this year. But some of the supply outages do not favour Australia, according to Cully.
“Huge rainfall and other weather-related problems in Queensland have disrupted a few mines, rail-lines and a port, with notable impact on metallurgical coal,” Cully said.
“As metallurgical coal is used to make steel, this brings further uncertainty into iron ore markets, adding to the problems of some coal exporters.”
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Aside from that, the report forecast strong market conditions for thermal coal, liquefied natural gas (LNG), bauxite, copper and zinc.
Copper, for instance, is likely to experience big swings in prices and inventory levels over the next few years due to disruptions to production, according to Cully.
Queensland Resources Council chief executive Ian Macfarlane said it was critical there was stable and predictable policy and royalty tax rates, or Queensland would fail to benefit from the improved outlook across key commodities.
“Haphazard or anti-investment policy will only allow our competitors to improve their market share, attract new investment, create new jobs and return more taxes to their own governments,” Macfarlane said.
Trade tensions remain the largest risk to commodity markets, but a potential hazard is also presented by a deeper than expected downturn in the global growth cycle, now in its ninth year.
Technological change has always shaped commodity demand, and the next five years are likely to deepen this link.
“In the near-term outlook, most of the story relates to supply. In the longer term, two trends are worth watching. One is geographic, with a rapid shift now underway towards India and emerging Asia. The other is technological, and linked to global efforts on climate change and the emergence of new consumer technologies,” Cully said.
“The greatest long-term rewards will flow to the commodity producers who can spot the opportunities presented by these trends and capture them.
“The emerging commodities will probably be those with connections to wireless and automotive technology, low-carbon energy, and power storage.”
Export is forecast to drift lower down to about $227 billion by 2023–2024 as global commodity supply improves.