Australia trims outlook for commodities peak as prices weaken

Iron ore. (Image by CDE Global, Flickr).

Australia’s earnings from mining and energy exports are projected to peak by the middle of next-year, though weaker raw materials prices and waning demand have trimmed the forecast high, according to the Department of Industry, Innovation and Science.

  • Earnings in the year ending June 30, 2020 are now forecast at A$281.6 billion ($190 billion) from A$279.3 billion a year earlier. The figure compares to a forecast published July 1 for A$284.6 billion
  • A global slowdown in industrial output means commodities prices have retreated from recent highs, and the sector will need to contend with softer demand and rising supply, the department said in a report published Monday

Other key points:

  • U.S.-China trade tensions mean there’s a weaker outlook for Australia’s base metal and energy exports, though the wider industry is benefting from an increase in gold export earnings and the depreciation of the Australian dollar
  • Cutbacks in global manufacturing are “already flowing through into commodity markets,” the department’s Chief Economist David Turvey says in the report. “Any further decline in Chinese economic growth could have even more significant effects on global supply chains for a range of technology and other products,” he says.

Commodity forecasts:

  • Iron ore seen averaging $80.10/ton in 2019, $61.40/ton in 2020 and $57.50/ton in 2021, unchanged from previous forecasts. Projections refer to spot ore with 62% content, FOB Australia.
  • Newcastle benchmark thermal coal forecast to average $95/ton in 2019 and decline to $72/ton in 2020 as demand weakens.
  • Spot coking coal is forecast to average $186/ton in 2019 and $168/ton in 2020.
  • Oil prices are seen declining on higher output, including from the U.S. Brent crude to average $65.70/barrel in 2019.
  • Gold seen supported by trade tensions and geopolitical risks and is forecast to average $1,391/ounce in 2019. Prices in Australian dollar terms to rise to a record annual average A$2,042 an ounce in 2020.
  • Copper prices experienced increased volatility on trade tensions and reduced economic activity, though will be supported longer-term by rising consumption. Prices to average $5,938/ton this year and $6,193/ton in 2020.
  • Lithium prices are expected to see further falls after declining about a third year on year amid surging supply. Growth in global lithium consumption has slowed in response to challenging economic conditions and policy changes in China
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