Iron Ore and Coal Price Declines Set to Impact Australia's Export Revenue

The Australian government's Department of Industry, Science, and Resources has projected a shrinking trend in the nation's earnings from commodity exports in the forthcoming years. This is primarily due to anticipated decreases in the prices of iron ore, liquefied natural gas (LNG), and coal. The quarterly report by the department identifies several contributing factors to this downtrend, including fewer disruptions in supply, sluggish global economic growth, and an expected strengthening of the Australian dollar.

In the fiscal year ending June 2024, exports from the energy and resources sectors are predicted to fall to $408 billion, a 12% decrease from the record-high revenues of the previous year. A more drastic slowdown is forecasted for the subsequent year, with export earnings projected to plummet to $348 billion in 2024-25.

Mining, accounting for over 13% of Australia's gross domestic product (GDP), experienced a windfall from soaring commodity prices in the aftermath of Russia's invasion of Ukraine. However, this boom generated by supply shocks has since waned. Although traditional exports like iron ore and coal are expected to decrease in significance over time, Australia is shifting its focus towards enhancing the production of minerals vital for energy transition, such as lithium, nickel, and copper.

According to the report, Chinese efforts to stabilize their property market have bolstered iron ore. However, a withdrawal from current levels is likely within the next two years. Prices for thermal and metallurgical coal are also projected to drop. The Israel-Hamas conflict has not significantly impacted Middle East oil and gas supplies, leading to prices reverting back to pre-conflict levels.

Despite the price of lithium falling over the past year, the value of committed projects for battery metals has surged by 75% to A$5 billion ($3.6 billion). These projects now account for 9.3% of the total, mirroring the percentage of iron ore. The department maintains that the investment outlook for Australia's resources and energy sector remains robust, buoyed by a blend of new energy and traditional commodities. Australia's lithium producers are well-placed to compete in the global market, given the strong long-term demand forecast.

The value of committed resources and energy projects, where a final investment decision has been made, declined by 9.3% over the past year to A$77 billion. This decrease is largely due to an increase in project completions, with a total of 86 projects reaching a final investment decision. Despite these challenges, the resilience and adaptability of Australia's resources and energy sector suggest a promising future, underpinned by strategic shifts towards minerals critical to the global energy transition.