Australia, one of the world’s leading exporters of natural resources, is facing a decline in its commodity export earnings over the next couple of years. The main factors behind this trend are lower prices for iron ore, coal, and liquefied natural gas (LNG), as well as a stronger Australian dollar.
According to a quarterly report released by the Department of Industry, Science and Resources on Monday, energy and resources exports will fall to $408 billion in the year through June 2024, down 12% from a record high in the previous year. The report also forecasts a sharper slowdown in the following year, to $348 billion in 2024-25.
The department attributes the drop in export revenue to fewer supply disruptions and “relatively soft” global economic growth, which reduces the demand for commodities. In addition, the Australian dollar is expected to appreciate against the US dollar, making the country’s exports less competitive in international markets.
Iron ore, coal, and LNG are the three largest contributors to Australia’s commodity export earnings, accounting for more than 60% of the total. However, all three are projected to see lower prices in the coming years, as global supply increases and demand moderates.
Iron ore, which reached a record high of $230 per tonne in May 2021, is expected to average $85 per tonne in 2024-25, as China, the largest buyer, reduces its steel production and diversifies its sources of iron ore. Coal, which has been hit by environmental regulations and the shift to renewable energy, is also expected to decline in both volume and value. LNG, which has benefited from the recovery in oil prices and Asian demand, is likely to face downward pressure from rising competition and oversupply.
According to Mining.com, the report noted that the outlook for China, Australia’s largest trading partner, has improved in recent months, as the country has managed to contain the coronavirus outbreak and stimulate its economy. However, the report also warns of the risks of further trade tensions between the two countries, which have already affected some Australian exports such as barley, wine, and lobster.
On the positive side, the report highlighted the potential of new energy and traditional commodities, such as lithium, nickel, copper, and gold, to boost Australia’s export earnings in the future. These minerals are vital for the energy transition and the production of batteries, electric vehicles, and other technologies.
It said that the value of committed projects for battery metals has increased 75% in the past year to A$5 billion ($3.6 billion) and now represents 9.3% of the total, the same as iron ore. It also says that Australia’s lithium producers remain well-placed to compete in the global market, given the strong long-term demand outlook.
The report added that the value of committed resources and energy projects has declined 9.3% over the past year to A$77 billion, reflecting an increase in project completions. However, it says that the investment outlook for the sector remains healthy, underpinned by a mix of new energy and traditional commodities.
It concluded that Australia’s resources and energy sector will continue to play a key role in the country’s economy and its recovery from the pandemic. It also says that the sector will contribute to the global efforts to reduce greenhouse gas emissions and achieve net-zero targets by 2050.
