Aus­tralia sees com­modi­ties peak this year

Re­bound saw iron ore, cok­ing coal surge, boost­ing global min­ers’ earn­ings

The Star Early Edition - - BUSINESS REPORT / INTERNATIONAL - David Stringer and Ran­jeeta Pakiam

A COM­MODI­TIES re­bound that saw iron ore and cok­ing coal surge and boosted earn­ings at global min­ers was set to peak this year, ac­cord­ing to the govern­ment of Aus­tralia.

The value of the coun­try’s en­ergy and re­sources ex­ports would rise to a record A$204 bil­lion (R2 tril­lion) in the 12 months to June 30, be­fore de­clin­ing to A$202bn the year af­ter as prices re­treated, the Depart­ment of In­dus­try, In­no­va­tion and Sci­ence es­ti­mated in a quar­terly re­port yes­ter­day.

Com­modi­ties climbed last year to post the first annual gain in six years as Chi­nese stim­u­lus boosted steel out­put, while sup­plies were con­strained in some mar­kets.

Steel-mak­ing in­gre­di­ents in­clud­ing iron ore and cok­ing coal were set to de­cline as de­mand from res­i­den­tial con­struc­tion in China shrank and dis­rup­tions in coal sup­ply prob­a­bly proved tem­po­rary, ac­cord­ing to the re­port.

The po­ten­tial for a pos­i­tive im­pact on de­mand from US Pres­i­dent-elect Don­ald Trump’s poli­cies re­mained uncer­tain, it said.

High prices “are not ex­pected to last”, the chief econ­o­mist at Aus­tralia’s in­dus­try depart­ment, Mark Cully, wrote. “The com­bi­na­tion of slow­ing de­mand growth from China’s steel sec­tor and in­creased global sup­plies are ex­pected to lower ex­port unit val­ues.”

Av­er­age prices of iron ore were fore­cast to re­main flat this year at $52.70 (R722) a ton and de­cline to $48.80 next year amid ris­ing low-cost sup­ply and a more sub­dued out­look for de­mand, the depart­ment said. This year’s fore­cast was raised 18 per­cent from a Septem­ber pro­jec­tion of $44.80.

While RBC Cap­i­tal Mar­kets ex­pected prices to re­treat this year, echo­ing out­looks from Bar­clays and Mor­gan Stan­ley, a sur­vey by Sin­ga­pore Ex­change showed in­dus­try re­spon­dents thought iron ore would hold its ground or even ad­vance as China’s im­ports rose.

Iron ore with 62 per­cent con­tent de­liv­ered to Qing­dao hit a two-year high of $83.58 a ton last month, ac­cord­ing to Me­tal Bul­letin. The bench­mark price, which surged 81 per­cent last year, ended last week at $76.25.

Rio Tinto Group, the sec­ond-largest iron ore ex­porter, de­clined 1.3 per­cent to A$59.35 in Syd­ney trad­ing yes­ter­day. BHP Bil­li­ton slipped 0.1 per­cent, as Fortescue Met­als Group dropped 3.8 per­cent.

The ar­rival of new low-cost iron ore sup­ply from Aus­tralia and Brazil would ex­tend the grip that the two largest ex­porters held on the seaborne mar­ket, ac­cord­ing to the re­port. Ex­ports from Aus­tralia might rise to 901mil­lion tons next year from 802 mil­lion tons last year, while Brazil­ian ship­ments would ex­pand to 433 mil­lion tons from 393mil­lion.

First ship­ments by Vale from its $14bn S11D mine in Brazil were sched­uled from mid-Jan­uary. The new op­er­a­tion was ex­pected to ramp up to 90mil­lion tons of out­put by 2020. In Aus­tralia, Gina Rine­hart’s Roy Hill Hold­ings was ex­pand­ing out­put to a tar­geted rate of 55mil­lion tons a year.

Aus­tralia’s ex­ports were ris­ing at a slower pace than fore­cast, ac­cord­ing to the re­port. Ship­ments were fore­cast at 862mil­lion tons in the year to the June, com­pared with a Septem­ber pre­dic­tion of 877 mil­lion tons.

The value of planned min­ing and en­ergy projects in Aus­tralia de­clined as pro­duc­ers fo­cused on rais­ing out­put and cut­ting costs, the depart­ment said in a sep­a­rate re­port.

A to­tal of 39 projects worth about A$195bn had fi­nanc­ing and ap­provals by the end of Oc­to­ber, 12 per­cent lower than a year ear­lier.

‘Po­ten­tial for a pos­i­tive im­pact from Pres­i­dent-elect Don­ald Trump’s poli­cies re­mained uncer­tain’

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