The forecast for a slowdown in Australia's export earnings from resources and energy looks set to continue over the next year to 18 months, but perhaps not at a pace as deep as seen a few months ago.
Falling prices for key commodity exports such as iron ore, liquefied natural gas, lithium, nickel, and coal are forecasted to slash expected export revenues by $A56 million in the 2023-24 financial year. Three months ago, the Federal Department of Industry's Resource quarterly forecasted a slide of $67 billion.
A further significant fall is forecasted for 2024-25 to $348 billion ($352 billion in the September estimate). All in all, the department's economists are looking at a massive $118 million or 25% slump in export earnings – a fall that, if confirmed by the outcome, will result in massive cuts in employment and investment across the mining sector.
The December quarterly report from the department said that fewer supply disruptions and "relatively soft" global economic growth, together with an expected strengthening in the Australian dollar, will push down revenues over the next year to 18 months. However, it did point out that a small improvement in the outlook for China and easing concerns about a hard landing in the US economy had lifted a little of the gloom in the outlook.
Australia, through its resources sector, has been a major beneficiary of the surge in commodities prices following Russia's invasion of Ukraine in late February 2022, but that supply-shock-driven boom has now worn off.
Not even the October 7 Hamas attack on Israel and that country's counter-attack and lots of hot air from the likes of Russia and Saudi Arabia and tightening and cutting supplies of oil have boosted prices or demand. In fact, oil prices are heading for a yearly loss, despite a run-up over $US90 a barrel earlier this year.
While forecasts are for iron ore prices to fall, they have been above $US130 a tonne for much of the past quarter, even as Chinese steel output slows to 15-month lows. Chinese iron ore imports will be a record 1.18 billion tonnes or thereabouts, an outcome not seen by any forecaster up to a couple of months ago.
Chinese thermal coal imports have surged (and the resumption of Australian shipments has helped meet that higher demand) and will end up above 50% above the traditional 300 million tonne limit. That also includes imports of coking coal (which is not coming from Australia).
Iron ore has been buoyed by Chinese measures to steady its stricken property market (but without boosting steel production), but there's likely to be "some retreat" from current levels over the next two years, the quarterly said.
Thermal and metallurgical coal exports revenues are forecasted to decline because the lack of any fallout on supply or prices from the Israel-Hamas war has left prices weak and listless.
The price of lithium has plunged over the last year, but the importance of committed projects for battery metal continues to climb, the department said. But export income from lithium is forecasted to fall to around $16 billion in 2024-25 from the record $20 billion in 2022-23.
"The investment outlook for Australia's resources and energy sector remains healthy, underpinned by a mix of new energy and traditional commodities," the department said in the report. The nation's lithium producers remain well-placed to compete given a strong long-term demand outlook, it said.
The value of committed resources and energy projects — where a final investment decision has been taken — declined 9.3% over the past year to $77 billion, reflecting an increase in project completions, according to the report. A total of 86 projects have reached FID, it said.
However, higher costs are a continuing concern.
