Yesterday we told you that iron ore prices would rise by an unexpectedly large 20% in the June quarter, with a further boost to come from India’s surprise move to boost taxes on iron ore exports.
That would push prices to around $US180 a tonne in the June quarter, more than 40% above the level a year ago.
Later in the day, the federal government’s resources forecaster, the Australian Bureau of Agricultural and Resource Economics and Sciences released its latest quarterly commodities report containing a bullish prediction of a 14% jump in the value of commodity exports (to $251 billion) by June 30 of next year.
That was after an expected near 30% increase in the value of all commodity exports for the 2011 financial year.
That record of $220.6 billion will be around $4 to $5 billion less than it should have been thanks to the impact of the Queensland floods in December and January and Cyclone Yasi.
And the continuing strength of the Australian dollar will continue to clip the returns to exporters in the coming year.
ABARES sees the dollar continuing around its current high level. The Bureau has forecast no change in the dollar’s value (they have a rate of 0.97 USc, against the current $US1.01) until well into 2012.
ABARES predicted Australian farmers would lose about $2 billion in production from heavy rains and severe flooding, with another $300 million in production wiped from far north Queensland by Yasi.
ABARES also said the big wet would cost Australian coal exports between $2 to $2.5 billion with 15 million tonnes of mostly good quality coking and thermal coal lost.
The forecast 13.9% rise to a record $251.3 billion for the 2011-12 financial year will follow an expected 29% rise in the value of all commodity exports in the June 30, 2011 financial year to a record $220.6 billion.
ABARES said that export earnings from minerals and energy commodities are forecast to rise by 15.6% to $214.6 billion in 2011–12, following a rise of 33.5% to a forecast $185.6 billion in 2010–11.
"Forecast higher prices and rising global demand in 2010–11 are expected to increase the profitability of producers and contribute to higher Australian production.
"The volume of Australian mine production is forecast to rise by 7 per cent in 2010–11, stemming primarily from growth in energy commodities.
"Production of metals and other minerals is forecast to increase by 10 per cent in 2010–11, reflecting higher iron ore production (up 6%).
"In 2011–12, production of metals and other minerals is forecast to increase by around 6 per cent as higher production is expected from a number of commodities including iron ore, gold and copper.
"Production of energy commodities is forecast to increase by around 4 per cent in 2010–11, with increased production of thermal coal despite disruptions caused by the Queensland floods.
"Production of energy commodities is forecast to increase by a further 11 per cent in 2011–12, supported by a forecast increase in metallurgical and thermal coal production.
"For energy commodities, export earnings are forecast to rise by 21 per cent to $88.8 billion in 2011–12, being largely driven by forecast higher prices for coal.
"For metals and other minerals, export earnings are forecast to increase by 12.1 per cent to $125.8 billion in 2011–12, reflecting higher shipments and prices for Australian iron ore," ABARES said.
The Bureau said that exports of farm products were forecast to rise 4.4% to $32.5 billion in 2011-12, from the $31.4 billion expected for the current financial year.
This was despite the recent rain and floods in several states hitting winter crops, fruit and vegetables, cotton and grain sorghum.
The forecast value of farm exports in 2010-11 represents an upward revision of around $1 billion from the forecast released by ABARES in December, mainly reflecting the effect of recent significant increases in agricultural prices on world markets.
Rice, cotton and wheat exports are forecast to improve, with world prices for wheat, sugar and cotton expected to remain at current high levels.
For the near term, the backdrop for Australia’s commodity exports remain strong overall, ABARES forecast said.
"First, forecast strong commodity demand, especially for mineral resources, is expected to provide support for world commodity prices and, hence, Australia’s commodity export earnings and terms of trade," it said.
"Second, Australia’s interest rates will remain relatively high compared with major OECD countries, given Australia’s advanced stage of economic recovery."
Despite a strong outlook for commodity exports, there were considerable risks with Australia’s leading export market as China raises interest rates and cuts government spending to slow down economic growth, the report said.
"There is a possibility that domestic demand could weaken significantly, undermining growth in commodity demand," it said.
"On the upside, China appears to have been more resilient to both internal and external shocks than other major world economies."
The report was compiled before China’s Premier Wen Jiabao revealed that the target growth rate for the new five year plan from next year would be 7%. That’s a floating target as China’s growth has been in double digits for the current five year plan.
But he indicated the new plan would concentrate more on services, quality of life and social welfare issues.
The government is very concerned (scared?) about inflation and the damage that could do to its political health.
The Bureau’s forecast for th
