Wednesday 15th Aug, 2018

Matured mining sector to pay dividends: Chief Economist

Coal ships loading at Newcastle. Photo: Southern Cross Maritime
Coal ships loading at Newcastle. Photo: Southern Cross Maritime

The nation’s chief economist has projected Australia’s “remarkable” resource export growth phase to finally end in 2020, but this growth has set the table for mining to provide a significant boost to the Federal Budget through to at least 2023.

The latest Industry Department outlook indicates consistent high volumes, and stronger-than-expected commodity prices will help Australian mining exports contribute roughly $1 trillion to the economy over the next five years.

With most of Australia’s major iron ore projects now fully online, iron ore exports are projected to stay stable between 880 and 900 million tonnes a year between now and at least 2023.

Stable volumes will result in a gradual decline in overall export value due to a predicted decline in the price of iron ore. The chief economist is forecasting an average iron ore price of $61.80 a tonne in 2018, dropping to $50 a tonne (in real terms) in 2019, then to $49, $51, $52 and $53 a tonne in the subsequent four years.

Despite the price declines, iron ore is still projected to be – by far – the country’s valuable mining export, with a projected value of $54.6 billion, in real terms, in FY23.

Mining sector phases

 

Australia’s metallurgical (i.e. steelmaking) coal exports are forecast in the most recent figures to grow incrementally, from 197 million tonnes in 2018 to 212 million tonnes in 2023. A gradual decline in the market price for met-coal (in real terms) will result in a gradually dipping overall value for the export, however.

The chief economist is forecasting real contract prices for metallurgical coal to decline from $200.5 per tonne in 2018, to $162.9 per tonne in 2023, resulting in a trade worth $33.6 billion in FY23, compared to a forecast $39.9 billion in FY18.

In thermal coal, the chief economist is forecasting incremental growth in volumes, and slight declines in overall export value, between 2018 and 2023.

Australia is forecast to export 202.1 million tonnes of coal in FY18, worth $22.9 billion. This will shift to 208 million tonnes of exports in FY23, worth $17.1 billion (in real terms), according to the projections.

In contrast to coal and iron ore, the value of the LNG export market is set to increase dramatically over the next five years.

61.6 million tonnes of LNG forecasted in FY18 will grow to a projected 78.9 million tonnes in FY23. Thanks to forecasted stability in the price of gas, this will result in a value growth from $30.4 billion in FY18 to $38.8 billion in FY23, according to the new figures.

The chief economist, Mark Cully, said the overall outlook was for a stable – and substantial – resource export trade for Australia.

“In the annual update of our five year forecasts, we project export earnings to decline slightly from current levels, before levelling out at about $212 billion to $216 billion from 2019–20 onwards,” Cully said on April 9.

“In total, the next five years will deliver more than $1 trillion in resources and energy export income. This compares with average annual export earnings of $72 billion in the decade prior to the onset of the resources boom, validating our long-held view that the mining boom would continue to reap dividends long after the price peak in 2011.”

Cully said increasing global supply for steelmaking commodities, and declining production in China, would drive the price declines in metallurgical coal and iron ore.

He said the price of Australian LNG, set by the oil price, is expected to increase modestly, constrained by price-sensitive shale oil production in the United States and sluggish growth in world oil consumption.

The modest growth lines up nicely with the Australian LNG sector’s final transition into the production phase. “The last of Australia’s LNG projects is scheduled for completion by the end of the year,” Cully said.

Resources minister Matt Canavan said the new figures demonstrate the resources sector is going from strength to strength.

“Australia’s resources and energy export volumes are projected to hold up near their current historical highs over the next five years and in that period earn more than a trillion dollars for Australia,” Canavan said.

“We are seeing healthy growth in commodity prices, particularly iron ore and metallurgical coal, combined with growing export volumes, especially in LNG.”