Mining has reached the bottom of the downturn and has begun its recovery, according to a new IBISWorld report.
The major commodities, across the board, have seen a revival in fortunes after shedding prices continually for the last few months, creating a horror year, causing revenue in the mining division to decline by 10.0% in 2014-15, to reach $211.8 billion.
Iron ore hit a four month high last week after dropping to all-time lows in in April, having now risen to more than 40 per cent of the trough since then.
Gold has also seen a slight rally over the last month, following weaker trading in Europe on the back of poor economic data from China, coupled with a slightly weaker US dollar.
"With the dollar now slipping again and with some of the other markets looking a bit [like they have reached unstable highs and are likely to decline], it may be that the precious metals look relatively cheap as a safe-haven asset class should investors feel the need for a haven," William Adams, head of research at Fastmarkets, explained.
Coal, while not seeing dramatic price rises, is again seeing some positive turns from emerging markets.
According to NSW Minerals Council CEO Stephen Galilee exports to Korea have risen by eight per cent, while exports to Taiwan are up 21 per cent.
Meanwhile, across the rest of Asia outside of Japan and China, coal exports have more than doubled to 15.6 million tonnes over the last nine months.
“We are also seeing the rise of India as a new growth market for the quality NSW thermal coal, with exports to the country doubling so far over this financial year,” Galilee said.
Figures released by Coal Services show that in the last nine months to 31 March 2015 exports of NSW coal to India have doubled from 3.2 million tonnes to 7.7 million tonnes, highlighting the market opportunities for our state's largest commodity export on the subcontinent.
In the latest IBISWorld report, it forecasts a revival for the industry in 2015-16, as the mining sector recovers from a global oversupply and the corresponding fall in prices.
“It is anticipated that 2015-16 will offer a much rosier picture for some of the nation’s largest industries, but black and brown coal mining may struggle to recover,” IBISWorld senior analyst Spencer Little said.
“Key commodity prices are set to rebound, while additional capacity in several key industries is also expected to come on line in 2015-16,” he added.
Iron ore is expected to grow from the $63.119 billion recorded in 2014-15 by 5.5 per cent to $66.571 billion in the 2015-16, while the oil and gas industry is expected to boom, growing 12.8 per cent year on year to $45.409 billion.
“As the largest industry in the nation’s mining sector, global supply factors in the iron ore mining industry have underpinned the division’s poor performance in 2014-15,” IBISWorld stated.
“World iron ore prices declined at an annualised 34.6 per cent over the two years through 2014-15, falling to US$57.91 per dry tonne.
“A sharp fall in the world price of crude oil also led to struggles for the oil and gas extraction industry. The world price of crude oil declined at an annualised 26.0 per cent over the two years through 2014-15, as a result of global oversupply,” it added.
“Like the mining sector’s other major industries, this price drop caused revenue and exports to fall in the oil and gas extraction industry. Australian liquefied natural gas (LNG) export prices are based on the Asian LNG market, which typically dictates long-term contracts linked to the price of oil.”
Little added: “Large LNG projects were downgraded or written down, with some production put on hold as the fall in prices threatened the viability of several major projects.”
But now a turnaround is expected, particularly as the industry shifts from its construction to production phase.
It is expected that 13 new LNG trains with seven new plants will come online between now and 2018.
According to a recent Accenture Australia paper, the industry will increase output even further, with Australian LNG production rising 260 per cent between 2014 and 2018, to eventually pip Qatar at the world’s largest producer.
“Additional capacity in the oil and gas extraction industry is projected to come on line in 2015-16, including some of the first east coast LNG export facilities,” Little said.
This includes the Gorgon LNG project, APLNG, Gladstone LNG, Wheatstone, Ichthys, and importantly Shell’s Prelude project, the world’s first floating LNG (FLNG) facility.
“These gas projects are expected to contribute significantly to capital expenditure in the mining division in 2015-16 and also drive strong export growth.”
For the industry as a whole, IBISWorld expects Australia’s mining sector to rebound in 2015-16, albeit from a low base.
Sector-wide revenue is forecast to grow by 8.6 per cent in 2015-16 to reach $230.1 billion.
The Improving conditions in iron ore mining and oil and gas extraction are set to be the driving forces behind this recovery.
However not all reports on metals and minerals futures are as positive.
Most analysts agree the iron ore price rally will be short-lived – predicting the commodity to dip below $US50 per tonne over the next six months.
Last week Goldman Sachs said the current price rise was self-defeating, and simply meant more high-cost producers would have to close over the period to 2018.
‘Chinese steel consumption is contracting and we expect seaborne iron ore demand to peak next year, turning the iron ore market into a zero-sum game,” analysts said.
Unsurprisingly the future for coal is likely to be stressed.
“For black coal miners, revenue and exports have declined due to falling prices; however, unlike other key industries, black coal mining is unlikely to recover in 2015-16,” IBISWorld said.
However it did not differentiate between coking and thermal coal.
It expected a 4.1 per cent decline year on year to $39.364 billion.
When it came to brown coal, predictions are also not rosy.
“Brown coal mining firms are typically vertically integrated along the entire energy supply chain, from mining and generating to distribution and retailing,” IBISWorld explained.
“Weaker demand for brown coal inputs at these operators' power stations therefore negatively affected the brown coal mining industry's performance in 2014-15. This trend is expected to continue, causing a further drop in revenue in 2015-16.”
A minimal 1.1 per cent decline to $980.9 million is forecast.
When it comes to uranium, the story is mixed.
While the industry expanded dramatically in the last financial year, and rising global demand for uranium has boosted priced, ongoing environmental concerns have reduced appetite to a degree.
This was, in part, behind ERA’s shelving of the Ranger 3 Deeps underground project in the Northern Territory.
The decision was influenced by uncertainty in the future of the uranium market, as well as requirements that would span beyond the 2021 mining licence.
However, Ranger aside, the rest of the market is predicted to remain strong.
“The continued depreciation of the Australian dollar is expected to contribute to uranium revenue and export growth,” Little said.
“Australia’s total uranium production and export volumes are likely to rise due to new mine developments and several expansion projects.”
Overall the uranium industry is predicted to slow its rapid growth from 30.4 per cent last year to a modest 4.5 per cent this year, increasing from $696.7 million in revenues to $728.2 million in revenues year on year.
“Despite declines in black and brown coal mining, growth in the division’s larger industries is expected to boost overall revenue,” IBISWorld stated.
“Rebounding prices for iron ore and crude oil, and additional LNG export capacity are projected to underpin stronger division performance in 2015-16.”