The Federal Government reckons the iron ore price slide won’t impact Australia’s resources and energy export revenues for the year to June, 2020.
In the September edition of the resource and Energy quarterly, the government boosted forecast export earnings from the mining and energy sector to a record $349 billion for 2021-22.
That will be despite lower iron ore prices and the continuing global disruption caused by COVID-19, as well as high inflation and continuing shipping and other supply chain hurdles.
The upgraded estimate is good news for the resources sector – even for the big iron ore groups, though Fortescue, without the diversification BHP and Rio have with their copper, aluminium, bauxite and nickel operations, faces a lot more pressure on revenue and profits.
But Woodside, BHP, the merged Santos/Oil Search, Beach, Whitehaven and New Hope look like having good years, if the price and volume growth matches the forecasts.
Driving the rise from the previous estimate for 2021-22 of $310 billion is a forecast surge in the value of coal and LNG exports (we are already seeing that at the moment).
The value of iron ore exports is forecast to fall $US20 billion this financial year but the value of LNG exports will rise an estimated 26 billion and the value of coking and thermal coal will also rise, taking the extra export income from the three commodities to $44 billion for the June, 2022.
But the September quarterly forecasts a 14% slide in the following year – 2022-23 to $299 billion.
“The rollout of COVID-19 vaccines in advanced nations is allowing a strong rebound in the services side of the world economy. However, a new surge in cases (of the delta strain) in many nations is inhibiting a full global recovery, including in the automotive sector where semi-conductor chip shortages have forced some renewed plant closures.
“Container shortages and other supply chain blockages are also impacting adversely on global trade and output, and contributing to upward price pressure.” the quarterly noted.
Australian iron ore earnings are (still) forecast to decline sharply in the outlook period, after topping the $150 billion mark – the first time ever for an Australian commodity – in 2020–21.
The global economic recovery and constrained supply saw prices exceed US$230/tonne in the middle of 2021, but the Chinese government’s efforts to limit the country’s 2021 steel output (to 2020 levels) has seen the price slump dramatically in the September quarter.
“The ongoing recovery in Brazilian supply is set to impact adversely on prices in the outlook period.” the quarterly added.
“Both a stronger outlook for base metals and coal, and the noticeable decline in the Australian dollar over the past three months, have more than offset the impact on export earnings of the modest downward adjustment we have made to our iron ore price forecasts.
“Lithium exports – of spodumene concentrate and refined chemicals – are expected to almost match zinc exports in 2022–23, as the race to make the world auto fleet electric gathers pace. And exporters of aluminium, nickel, zinc and copper are benefiting from the global move to low emission technologies.
“Thermal coal prices have surged in China, as critical shortages emerge. Seaborne thermal coal prices have risen to their highest level in more than a decade ($US212 a tonne for Newcastle thermal coal this week).
“High demand from steel producers and problems with Mongolian supply has also seen Australian metallurgical coal prices reach multi-year highs (well above $US400 a tonne), more than regaining all of the reduction in export earnings following China’s 2020 bans.
There are downside risks to these extremely strong export earnings forecasts. They include a potential for a spike in global inflation and a risk of higher interest rates in response.
New, vaccine-resistant strains of the coronavirus, and the risk of delays in the rollout of effective COVID-19 vaccines to the world’s population, also pose significant risks. Another downside risk is the extent of any further disruptions to Australian resource and energy commodity trade with China.
