Australian Metal Exports Central to Global Energy Transition Set to Double to $33 Billion

Australia already the world’s number one exporter in iron ore, natural gas and coal is set to see its metal exports essential to the global energy transition from fossil fuels double in just over a year to $33 billion. These metals include copper, nickel and lithium. The venerable Resources and Energy Quarterly from the Australian Office of the Chief Economist’s outlook for global commodity prices, demand and supply sees a dramatic surge in Australian exports critical to energy transition. 

Australia’s resource and energy export earnings are forecast to reach $450 billion in 2022–23. The weak AUD/USD (actual and forecast) will play a significant part in this surge.

High energy prices and a weak Australian dollar against the US dollar are driving a surge in export earnings for Australia. After a record $422 billion in 2021–22, resource and energy export earnings are expected to increase to $450 billion in 2022–23, before falling back to $375 billion in 2023–24. Metals central to the global energy transition (copper, nickel, lithium) are set to earn $33 billion in 2022–23, double what they earned in 2020–21.

Global Electric Vehicle Sales

Global sales of all types of EVs increased 36% in the year to June 2022 compared with the same period in 2021, with Chinese sales up 110%, European sales up 6%, and North American sales up 27%.

In China, total EV sales have averaged almost half a million vehicles a month so far in 2022, reaching a peak of 650 thousand vehicles in June.

Overall, auto production and supply chains in China have now largely recovered from the COVID lockdowns, when EV sales fell to just over 300 thousand vehicles in April 2022.

EV sales accelerating, but race against LFP is present

Sales of electric vehicles hit 6.8 million units in 2021, this was more than double the number of sales in the previous year and continues to surge in 2022. EV sales are forecast to grow to 11 million units in 2022. Nickel use in batteries is expected to grow 33% this year as a result.

The evolution that is critical here that lithium iron phosphate (LFP) batteries are emerging as
a strong contender to nickel-based battery technology.

While nickel-based chemistries provide higher energy density, LFP batteries are cheaper, less prone to thermal runaway and often have a longer shelf life. Further, the resources needed to produce the battery are much more readily available than nickel.

LFP batteries have largely been limited to Chinese automotive manufacturers, with Western manufacturers preferring nickel-based batteries. China accounts for the majority of EV sales growth,
and 60% of Chinese EVs are sold with an LFP battery, nickel consumption in batteries will likely grow more slowly than total EV sales.

EV and EV battery manufacturing is currently dominated by China. With many nations looking to reduce their reliance on Chinese (and Russian) supply chains, Australia’s resource exports are likely to become more diversified over the long term.

Copper

Office of the Chief Economist’s forecasts copper prices to fall by 4.9% to below US$8,900 a tonne in 2022, as COVID-19 containment measures and high energy prices weigh on demand. Prices are forecast to fall to US$8,300 a tonne in 2024 as mine production grows.

  • Australia’s copper exports fell to 802,000 tonnes in 2021–22 as scheduled maintenance reduced production.
  • Copper exports are expected to grow to 977,000 tonnes by 2023–24 as production from new mines and mine expansions come online.
  • As output and export volumes grow, Australia’s copper export earnings are projected to lift from $12.3 billion in 2021–22 to $13.9 billion in 2023–24.

Nickel

Office of the Chief Economist’s forecasts nickel prices to average US$24,900 a tonne in 2022, boosted by the fallout from the Russian invasion of Ukraine. Prices are expected to ease over the outlook period, as a result of increased Indonesian production and improving liquidity in the LME nickel market.

  • Recent high prices have boosted Australia’s nickel export earnings, which reached $4.4 billion in 2021–22.
  • Export earnings are forecast to rise to $5.1 billion in 2022–23, before easing to $4.6 billion in 2023–24.
  • Australia’s export volumes are estimated to rise from 157,000 tonnes in 2021–22 to 202,000 tonnes in 2023–24, supported by the need for Australian nickel for the transition to low-emissions technologies.

Lithium

Office of the Chief Economist’s forecasts spodumene prices to rise from an average US$598 a tonne
in 2021 to US$2,730 a tonne in 2022, and US$3,280 a tonne in 2023 before moderating to US$2,490 in 2024. They expect lithium hydroxide prices to lift from US$17,370 a tonne in 2021 to US$38,575 a tonne in 2022 and US$51,510 in 2023, and moderate to US$37,650 by 2024.

  • Australia’s lithium production is forecast to grow from 247,000 tonnes of lithium carbonate equivalent (LCE) in 2020–21 to 387,000 tonnes in 2022–23 and 469,000 tonnes of LCE in 2023–24.
  • Australia’s lithium export earnings are forecast to increase by more than ten-fold in just two years from $1.1 billion in 2020–21 to $13.8 billion in 2022–23, and ease to $12.9 billion by 2023–24.

Global lithium demand continued to grow strongly in the June quarter 2022, driven by rising demand for electric vehicle batteries. Despite faltering global economic growth in the June quarter, sales and production of electric vehicles (EVs) continued their rapid growth trend.

Lithium exports are now forecast to rise by over 180% to $13.8 billion in 2022–23 but then drop to $12.9 billion in 2023–24, as prices ease. Lithium exports in 2021–22 were almost $5 billion, up from $1.1 billion in 2020–21.

Australian Resources and Energy Exports

In the September quarter 2022, the Office of the Chief Economist’s (OCE) Resources and Energy Export Values Index rose 25% from the September quarter 2021; a tiny rise in volumes added to a 24% gain in prices. This was after a record $422 billion in resource and energy exports in 2021–22, this financial year is likely to be even stronger, at $450 billion.

Exports are forecast to fall to $375 billion in 2023–24, as the loss of some Russian fossil fuels and base metals from world markets is filled by other suppliers, cutting prices. Price rather than volume-changes is forecast to (continue to) drive most of the move in future earnings.

The index of prices for resource commodity exports (Australian dollar terms) fell by 24% in the year to the September quarter 2022. Energy commodity prices rose by 91% from the September quarter 2021, as the looming loss of some Russian supply intensified existing market shortages.

The transition to low emission technologies will add significantly to the demand for non-ferrous exports over the outlook period.

Source: Australia resource and energy quarterly

From The TradersCommunity Research Desk