Surging iron ore drives mineral export value towards 2020 peak

Iron ore.

The Australian Government expects commodity export earnings to peak a year later than expected due to a swing in the global iron ore price and a slightly weakened exchange rate against the United States dollar.

The latest Resources and Energy Quarterly for the three months ending June 30 stated that the government expects the export peak to occur in the 2019–2020 financial year rather than the previously estimate peak of of 2018–19.

The Department of Industry, Innovation and Science has subsequently revised its export estimate upward by $12.9 billion for the new financial year to $285 billion, with iron ore expected to deliver $79 billion of this value alone.

Department chief economist Mark Cully said Australia’s iron ore output would partially “fill the gap” caused by Vale’s Brumadinho tailings dam disaster in Brazil in January, which has led to a shortfall in Brazilian exports that is expected to last at least two years.

“The seaborne iron ore market is thus likely to stay tight, and prices elevated, out to at least 2021,” he said. 

“Extra Australian output will partly fill the gap, as mining expands and disruptive weather in Western Australia recedes. The weaker Australian dollar outlook has also pushed up our 2019–20 forecast.”

Liquefied natural gas (LNG) and metallurgical coal are also expected to drive this performance as Australia’s second, and third-biggest export earners in 2019–20. 

LNG export value is estimated to rise from $50 billion in 2018–19 to $54 billion in 2019–20 before returning to $50 billion in 2020–21. 

The metallurgical coal sector, meanwhile, is expected to post record high earnings of $42 billion in 2018–19, before lowering to $36 billion in 2020–21 due to anticipated lowering of prices.

Conversely, thermal coal prices are expected to fall despite a lift in overall export volume, with gold forecast to overtake thermal coal as Australia’s fourth largest resources export by value in both 2019–20 and 2020–21.

“As a large producer and importer of thermal coal, China’s import policies, including extended customs clearance times, have added uncertainty into the market,” Cully said. 

“Seasonal factors appear to have had a larger than normal impact this year: the northern hemisphere — where most thermal coal is burnt — has emerged from a warmer than usual winter, which reduced heating-related energy use.”

The report warned of the potential impact of the trade debates between the US and China. US president Donald Trump’s comments following his June 28 meeting with Chinese President Xi Jinpeng at the G20 summit in Japan, however, suggest that no further tariffs will be imposed for now.

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