Commodity Rebound Forecast by Australia as Exports Resume Gains

  • Iron ore, gas, uranium to drive export value gains from `17
  • Government forecaster sees gains in iron ore prices to 2021

The global commodity rout looks set to hit a bottom with Australia, a key bellwether for the resources industry, forecasting the value of its commodities exports will resume rising from the second half of 2016.

Export earnings will rise by almost a third to A$208 billion ($157 billion) by fiscal 2021, the government’s Department of Industry, Innovation and Science estimated Friday in a quarterly report, after tumbling to a third straight annual decline in the current fiscal year.

The worst of the commodity price collapse is probably already over for materials including metallurgical coal, aluminum, zinc, lead and gold, Credit Suisse Group AG analysts led by Matthew Hope wrote in note dated Friday. The outlook for steel demand in China is also improving on the prospects for additional government infrastructure spending, the analysts wrote.

Despite falling prices and slower growth in China, iron ore will continue to provide the largest share of export earnings, accounting for A$71.6 billion in 2021, with revenue also boosted by a tripling of liquefied natural gas export volumes and a 71 percent surge in uranium cargoes. Commodity demand will be underpinned by urbanization and industrialization in emerging economies, the department said.

“There are some big volumes coming on line from this year,” Justin Smirk, a Sydney-based senior economist at Westpac Banking Corp. said by phone. “If you think that this year will be as bad as it gets for prices, then it’s quite reasonable to think that by 2017 there be a higher total value of exports.”

Five Years

Iron ore prices are set to rise for the next five years, gaining to $56 a metric ton next year and $64.70 in 2021, the department estimated. The commodity has staged a surprise rebound in 2016 as China’s policy makers signaled they’re prepared to support growth in the largest user.

Australia is the largest exporter of iron ore and coal and is projected to become the biggest exporter of LNG in the next five years. It holds the No.1 known reserves of uranium and is in the world’s top five for deposits of copper, gold, bauxite, lead, zinc, nickel and lithium. China accounts for about 54 percent of the nation’s mining exports and the central bank has urged Australia to find new growth drivers.

The value of energy and metals exports will rise to A$166 billion in the 12 months to June 30, 2017 from a forecast fall to A$160 billion in the current fiscal year, the department said.

Billionaire Gina Rinehart, Australia’s richest person, is ramping up output from her Roy Hill iron ore mine after it commenced exports in December, while Chevron Corp.’s $54 billion Gorgon liquefied natural gas project, the largest resource development in Australia’s history, started production in early March.

Australia’s mining capital expenditure reached a record in 2011 and is unlikely to be on this scale again as low prices, driven by well-supplied markets, and tighter access to finance reduced the incentive to invest, the industry department said. Although the prices for the nation’s largest commodity exports -- iron ore and coal -- are projected to increase, they are expected to remain well below the prices recorded over the past few years, it said.

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