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The Australian Chief Economist’s outlook for global commodity prices, demand and supply projects coal to overtake Iron ore as Australia’s largest export earner in 2018-19 generating $58.1 billion ahead of $57.7 billion from iron ore.

Australia Resource and Energy Exports June 2018

Source: Resources and Energy Quarterly

Coal is expected to hit its highest annual level ever in 2017-18 with a forecast earnings of $60.2 billion, made up of $37.5 billion (or 182 million tonnes) worth of metallurgical coal, and $22.7 billion (or 200.5Mt) worth of thermal coal.

Australia’s high-grade metallurgical coal is ranked the world’s best for modern steel making. Australia’s low-ash coal feels the needs of Asia’s high-efficiency, low-emissions (HELE) coal-fired power plants. By 2023, Asia’s import demand for thermal coal alone is projected to soar by 400Mt more than current levels.

The Minerals Council of Australia believes the resurgence of coal exports over the long-term will be underpinned by three factors:

  1. High productivity of Australia’s coal companies;
  2. Australia’s proximity to major markets; and
  3. Strong regional economic and population growth.

The Chief Economist in his forward said a major factor in the rebound in commodity prices over the past few years was 'moves by China to cut loss-making in its domestic production of resource and energy commodities such as coal, aluminium, steel and iron ore.'

The well-known commodity cycle story has evolved in two significant ways in the past two quarters.

First, it has become clear that the price rebound — initially expected to be temporary — has turned out to be more robust than expected. Prices have, on balance, held their position, supported by another surge of infrastructure and energy demand across emerging Asia. China’s demand, long expected to ease, has not fallen as swiftly or as sharply as expected. Other countries, including India and Indonesia, have increased their commodity imports.

The second thing to note is the increasing variance in price trends among individual commodities. The previously overwhelming movements — when commodity prices rose and fell in remarkable unison — appear now to be diverging. Some commodities are experiencing rising prices and consumption, while others are falling.

The factors influencing price movements vary increasingly between commodities as well. No single overarching trend now defines resource and energy commodity markets. This may be regarded as a return to normality following the largest demand investment boom in history. But it also signals the emergence of a more complex set of market conditions and a more unpredictable long-term direction.

MCA executive director, coal, Greg Evans said. “Governments across Australia need to ensure that sensible policy settings are in place to secure the economic, jobs and social dividend from the strong demand for coal in our region.”

Historically coal has been Australia’s biggest export earner, particularly to NSW and Queensland. It is mostly sold to developed north Asian markets, and the emerging markets of Southeast Asia and India.

In addition to export revenue, coal continues to make a significant contribution to the Australian economy. It provides 75 per cent of generation in the National Electricity Market, more than 51,000 direct jobs and $6 billion in state royalties.

Metallurgical coal

Australia Metalurgical Coal Exports June 2018

Australia’s metallurgical coal export earnings are set to reach a record $38 billion in 2017–18, driven by higher prices.

The metallurgical coal spot price is forecast to decline from an average of US$193 a tonne in 2018 to US$148 a tonne in 2020, with the impacts of improved supply combined with weakening demand from China expected to outweigh growing demand from India.

Australia’s export volumes are forecast to grow from 173 million tonnes in 2017 to 201 million tonnes in 2020, reflecting a steady recovery after Cyclone Debbie in 2017, and modest production growth from new capacity. Australia’s metallurgical coal export earnings are estimated to have reached a record $38 billion in 2017–18. Earnings are forecast to decline to $32 billion in 2019–20, as lower prices offset rising export volumes.

Thermal coal

Australia Thermal Coal Exports June 2018

Australia’s thermal coal export earnings are estimated to have reached a record in 2017–18, driven by strong demand from Asia.

Thermal coal prices have been supported by strong demand from Asia and constrained supply. However with the recent market tightness coming from largely transitory factors, the spot price is forecast to decline from an average of US$99 a tonne in 2018 to an average of US$74 a tonne by 2020.

Australia’s thermal coal export earnings are expected to have reached a record $23 billion in 2017–18, driven by high prices. Supply growth will be dominated by Australia, Russia and the United States, but investors will only reluctantly fund new capacity. Export volumes are forecast to remain broadly steady at 201 million tonnes are forecast to remain broadly steady at 201 million tonnes.

Source: Department of Industry, Innovation and Science (AU)

From a Sunburnt Country...

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