The surge in iron ore, copper, oil and gas and other mineral prices in the past 12 months has added an extra $1 billion a week to export earnings, according to data in the June Resources and Energy Quarterly from the Federal Department of Resources.
The revenue surge helps explain why our terms of trade are near all-time highs, with no sign of any significant fall in the near future which should be good news for our resource exporters and their shareholders.
The quarterly shows that the 2020-21 financial year which ends tomorrow, June 30, will see record mineral and energy exports of $310 billion thanks to a recovery in prices of major commodities, led by iron ore.
A year ago the quarterly forecast mineral and energy exports of $256 million as thinking was battered by the impact of the Covid pandemic and lockdowns and the slump in commodity prices (oil at a negative $US37 a barrel in one session in mid-April 2020 as an example).
The extra $54 billion wasn’t seen at the start of the financial year about to end and it could have been higher if not for the higher Australian dollar which rose 13% against the US dollar (the major pricing pair for Australian commodity exports) over the year to June 28 (Monday).
But such has been the rapidity of the recovery, starting in China, but elsewhere in Asia and now the US (and Australia, although we don’t influence prices of our commodities) that commodity prices have soared as demand has soared, but production has been slower to increase.
Covid still impacts some economies and mines – in Chile, Peru (and now in Australia in the Northern Territory) and parts of Asia such as Indonesia and the Philippines.
But such is the strength in the recovery in demand the quarterly expects exports to increase by another 8% in the 2021-22 financial year to $334 billion.
That’s another $24 billion over the next year, assuming there are no major disturbances in demand and prices from an upsurge in the pandemic in major customer economies.
And it believes there is a very good chance export income for this total sector will top $300 billion in 2022-23.
“Our projections suggest that resource and energy export earnings will peak in 2021–22, but remain over $300 billion in 2022–23. The extent of any further disruption to Australian resource and energy commodity trade with China poses a downside risk to these forecasts.
“A spike in global inflation and a sharper than expected tightening of monetary policy by the major central banks also pose a downside risk,” the quarterly report said.
Iron ore export income is forecast to rise to a record $149 billion in the 2020-21 financial year, surpassing last year’s $103 billion record.
This is due to higher volumes and record prices which reached upwards of $US200 ($263.50) a tonne in Mayand will end the financial year around $US216 a tonne.
“An easing in prices from the second half of 2021 is expected to push (iron ore) export earnings down to $137 billion in 2021–22, and $113 billion by 2022–23,” Resources and Energy Quarterly stated.
According to the report, metallurgical coal prices have seen a moderate recovery with the price forecast to increase form an average of $US143 per tonne in 2021 to around $US157 per tonne in 2023.
Supply chains disrupted by China’s informal import restrictions have largely reorganised, albeit with some loss of revenue,” the quarterly explained.
The report forecast coal export income will rebound from $22 billion in 2020-21 to almost $32 billion by 2022-23.
Thermal coal has also shown a recovery with the Newcastle benchmark to average $US88 a tonne in 2021 before dropping to US$67 per tonne by 2023. It was down around $US50-$US56 a tonne in mid 2020 as the pandemic ate demand.
“Commodity demand should thus be healthy over the outlook period. In a sharp turnaround of fortunes, Australian exporters of premium thermal coal are enjoying multi-year price highs,” the report explained.
“However, Australian producers of mid- calorific thermal coal and metallurgical coal have taken longer to pivot from China to other markets, where supply has been better able to keep up with sometimes constrained demand.
“Once India and other parts of Asia have slowed the COVID-19 pandemic, sales of these coal types should pick up.”
Australia’s gold exports are expected to rise to its highest export value in history at $29 billion in the 2021-22 financial year before declining to $28 billion in 2022-23.
Gold production is set to forecast from 332 tonnes in the 2020-21 financial year to 388 tonnes in the 2022-23 financial year.
The nickel price is projected to be up 26% higher average than in 2021 at $US17,360 due to the commodity continuing to remain in a supply deficit, with Australian nickel exports to rise from 197,000 tonnes in 2020-21 to 251,000 tonnes in 2022-23 (BHP will be pleased it hung on to its Nickel West business).
This is largely due to electric vehicle demand, with lithium also slated for an increase from 233,000 tonnes in 2019-20 financial year to 327,000 tonnes in the 2022-23.
The report also expects the copper price to stabilise through to 2023, with moderate exports rising 13% over the next two years – from 896,000 tonnes in the 2020-21 financial year to around 909,000 tonnes in 2022-23.