Iron ore stokes $310b mine export boom
Jun 28, 2021
From The AFR
Australia’s exports of resources and energy are set to crash through the $300 billion mark for the first time this financial year, buoyed by unexpectedly high prices for iron ore which is expected to account for almost half of the total.
About $310 billion of export revenues are anticipated from mining and energy in 2020-21, according to the Department of Industry, Science, Energy and Resources, which has lifted its estimate for 2020-21 export revenues by almost 5 per cent since March.
A further strong gain is now expected next year, rather than the modest dip that was thought to be on the cards just three months ago. Federal Resources Minister Keith Pitt said the “incredible” results underscored the importance of the resources sector to the national economy through the COVID-19 downturn. Higher than anticipated prices for LNG, thermal coal and base metals were all contributing to the rosy outlook for this financial year. “The sector is poised to take advantage of the global post-COVID recovery and capture opportunities from strong demand and higher prices across a range commodities,” Mr Pitt said. “The outlook for Australia’s energy and resource commodity exports continues to improve. ”The forecast for 2020-21 export revenues represents a 7 per cent increase from last year’s record of $291 billion and has now been upgraded over successive quarters including by almost 5 per cent from March’s forecast thanks to runaway iron ore prices.
After topping the $100 billion mark in 2019-20, the first for any commodity, iron ore earnings are expected to surge this year to $149 billion. That makes the steelmaking ingredient accountable for almost half of the total resources and energy exports thanks to a surge in global steel production. China’s trade hostilities with Australia have failed to dampen thermal coal earnings, with miners pivoting to other markets helped by critical shortages after a freezing northern hemisphere winter, the Department of Industry, Science, Energy and Resources reported in a quarterly assessment.“Our iron ore producers are benefiting from current high prices and decades of investment and innovation, while coal exporters have pivoted to new markets to regain much of the losses from COVID downturn and China’s informal import restrictions,” Mr Pitt said. Iron ore prices broke through the $US200 a tonne mark in March and have stayed there since, although prices are expected to ease late this year as Brazilian supply recovers, softening iron ore earnings to $113 billion by 2022-23. The department is estimating average iron ore prices dipping to $US129/t in 2021-22 from this year’s $US137, then to $US100 in 2022-23.Several analysts have also been forced to upgrade their iron ore price forecasts after the surprise resurgence in the spot price this month, which has helped keep sharemarket indices in record territory and put the major miners such as Rio Tinto and BHP on track to return record levels of cash to shareholders.
Prices for metallurgical coal, also used in steelmaking, have recovered all their losses suffered during the pandemic and China’s import restrictions and are expected to jump next year as consumption outside China recovers further. Prices for premium Australian thermal coal have hit their highest in more than a decade but are seen easing back. Base metal prices had all surged back above levels reached before the pandemic hit, with copper rising to more than $US10,000 a tonne, helping fuel concerns over global inflation, the department said. In energy, the rebound in oil prices from last year’s crash and robust demand has helped lift LNG prices, with a jump in earnings expected next financial year back up to near-record levels of $49 billion. Total expected resource earnings are now forecast to climb further next financial year to $334 billion, driven by spending on housing and construction in many overseas markets. But 2021-22 is now expected to be the near-term peak, with export revenues seen dipping the following year to $304 billion on moderating world economic growth and falling prices. Among the “downside risks” to the strong forecasts, the department cited a potential for a spike in global inflation and a sharper than expected tightening of monetary policy by major central banks, as well as a delay in the roll-out of COVID-19 vaccines. A further disruption of Australia’s commodity trade with China, which consumed 45 per cent of the country’s resources and energy exports in 2020, also posed a risk.
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