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Australian commodity update

Australian commodity update

High prices, good volume growth and a weaker Australian dollar are driving a surge in export earnings for the resources sector, according to the Office of the Chief Economist (OCE).

According to the September Resources and Energy Quarterly report, the Resources and Energy Export Values Index rose 49 per cent from the September 2020 quarter, a three per cent rise in volumes added to a 47 per cent gain in prices.

Exports were forecasted to reach a record $349 billion in 2021-22, up from $310 billion in 2020-21, before falling to $299 billion in 2022-23 as demand slows and global supplies increase.

This was seen in China, where a number of manufacturers halted production for a few days due to a power crunch from a shortage of coal supplies, toughening emissions standards and strong demand from manufacturers.

A Reuters article said the power crunch hurt production in industries across several regions of China and is dragging on the country’s economic growth outlook.

The OCE report said the iron ore price hit a decade high of US$230 a tonne before retreating sharply, with export earnings expected to lower to $99 billion in 2022-23 after the record high of $153 billion in 2020-21.

“Strong demand in some of the advanced industrialised nations has been unable to offset the impact of weaker Chinese demand,” the report said.

“Prices are expected to ease further over the outlook period, as Brazilian supply recovers and growth in world demand slows down.”

Metallurgical coal prices hit multi-year highs as demand surged from steel producers, although the report said prices were expected to ease over 2022-23 as supply increased. Export earnings were forecast to reach $30 billion in 2022-23.

Although steadying at US$1,800 an ounce after dipping to US$1,720 in August, the report said the gold price was likely to fall again as real bond yields rose.

Australia overtook China as the world’s largest gold producing country in the first half of 2021, although export earnings were forecast to decline to $27 billion in 2022-23 after reaching $29 billion in 2021-22.

Aluminium, alumina and bauxite exports were forecast to increase to nearly $14 billion by 2022-23, reflecting political instability in Guinea, strong Chinese demand and constrained supply.

Base metals fared the strongest due to rising demand and production of battery electric vehicles:

  • Copper export earnings were forecast to hit $14.4 billion in 2022-23
  • Nickel to hit $5.1 billion in 2021-22 before reducing to $4.6 billion in 2022-23
  • Zinc to increase to $3.9 billion in 2022-23

Lithium to more than triple from $1.1 billion in 2020-21 to $3.8 billion in 2022-23