Australia Forecasts Record Commodity-Export Earnings in FY18
October 05 2017 - 9:30AM
Dow Jones News
By Robb M. Stewart
MELBOURNE, Australia--Australia is set to reap record earnings
from commodity exports this fiscal year, although that likely marks
a peak as cooling demand from China's steel sector and rising
global supplies weigh on prices for coal and iron ore, the
government forecasts.
Prices for iron ore and metallurgical coal, both used to produce
steel, and for thermal coal used by power stations are expected to
fall in the next two years. That weakness is set to be more than
offset by rising volumes in the current year but will overwhelm the
effect of volumes on export earnings the following year, according
to a government report released Friday.
An anticipated drop in 2019 revenue would come despite rising
earnings from shipments of liquefied natural gas, which is set to
overtake metallurgical coal as Australia's most valuable commodity
export behind iron ore next year, the Department of Industry,
Innovation and Science said in a quarterly bulletin.
After surging last year on the back of a sharp rebound in prices
for iron ore and metallurgical coal, earnings from commodity
exports will rise 3.3% to an all-time high 210.8 billion Australian
dollars (US$165.8 billion) in the year through June, the department
forecast. But earnings are set to fall 4.6% the following year, to
A$201.2 billion.
The country benefited strongly during the last fiscal year and
into the current year from surging prices for iron ore and
metallurgical coal, although the gains have faded in recent
weeks.
In the July-September quarter, the value of resources and energy
exports grew by more than 25% year-over-year, the government report
said. It said the growth was driven largely by China's steps to
restrict domestic coal production from mid-2016 to reduce losses in
its industry and as Chinese iron-ore production weakened just as
its steel input demand recovered over the latter half of 2016 into
2017. Prices for coal and iron ore received a further boost over
the last fiscal year after bad weather disrupted Australian
shipments.
However, the average price for Australia's commodity exports is
forecast to weaken 4.3% this fiscal year and by a further 11% the
year after, as China's steel sector loses some of its recent
buoyancy and the global supply of bulk commodities picks up, the
government said. Demand for the country's commodities is also set
to moderate after a relatively strong year in 2017, with the
consumption of steelmaking commodities that currently make up
almost half of Australia's resources exports growing more
slowly.
At the same time, global demand for energy commodities is likely
to pick up modestly in 2018 as world economic growth firms and with
a modest recovery in Chinese energy consumption, the quarterly
report said. For Australia, that demand will be most noticeable in
LNG, which the government expects will advance at an annual 9.35%
between 2016 and 2019.
Massive LNG plants around Australia have positioned the country
to leapfrog Qatar as the world's leading exporter of the fuel in
the next few years. But this has contributed to rising prices and a
forecast shortfall of natural-gas supplies along the eastern
seaboard. Under threat of government curbs on LNG exports, Royal
Dutch Shell PLC and other producers have pledged to divert gas
supplies to the local market that would otherwise be sold in global
spot markets.
In the next two years, LNG export earnings are forecast to
increase at an annual average rate of 26% to reach about A$35
billion in 2018-19, Mark Cully, the department's chief economist,
said.
The government report noted signs that the fall in mining
investment in recent years was coming to an end, though it said
trends in exploration and expenditure don't point to an extension
of the resource production book that's currently set to peak in
late 2019.
Mining accounted for 6.9% of Australia's gross domestic product
in fiscal 2017, and more than 8% of real GDP growth in the
April-June quarter of 2017. The country's biggest market by far is
China, followed by Japan, then South Korea and India.
Mr. Cully said the prospects for Indian mineral and energy use
over the next 20 years are promising, yet won't be on the same
scale that was seen from China over the past decade or so.
Write to Robb M. Stewart at robb.stewart@wsj.com
(END) Dow Jones Newswires
October 05, 2017 09:15 ET (13:15 GMT)
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