Australia sees commodities peak this year
Rebound saw iron ore, coking coal surge, boosting global miners’ earnings
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’