Australia’s mining industry addressing downsize in China steel production

China’s move to reduce air pollution in large cities by limiting its need for iron ore and coal production over the next five years won’t slow Australia’s mining industry, a federal government report has claimed.

Current forecasts expect Australia’s resources and energy commodity export earnings to reach a record high of $215 billion in 2016-17 – a 35 per cent increase from 2015-16.

While export earnings are also forecast to remain at the same in 2017-18, Mark Cully, chief economist for the department of industry, innovation and science, believes the future for Australia’s resources and energy sector is strong.

“The expected rise in export earnings has been driven by spikes in metallurgical coal and iron ore prices, supported by the resurgence of China’s steel sector, as well as temporary supply disruptions,” Cully said.

“The report suggests the price gains are not expected to last over the medium term. Production of steel in China is expected to decline over the next five years, as construction activity slows.

“As prices decline beyond 2016-17, the value of Australia’s resources and energy exports are projected to decline. This will be thanks to the continuation of the production phase of the mining boom — which is not expected to peak until late 2019.”

Despite uncertainty surrounding the future of China’s steel industry, export volumes “are expected to continue to grow for iron ore, base metals, and coal”.

According to the report, the most important source of growth will be liquefied natural gases (LNG) while export volumes, which grew by nearly 50 per cent in 2015-16, are forecast to double in the next three years, as new production capacity comes fully online.

“Global demand for resource and energy commodities are expected to continue to grow in the next five years — but at a markedly slower rate than in the previous five years,” Cully continued.

“With reserves of high-energy coal and high-grade iron ore, demand for Australia’s resources will remain strong, as China moves away from using and producing low-energy coal and low-grade iron ore to limit air pollution in some of its large cities.”

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