Australia / Press Releases
Mixed Expectations: IBISWorld Commodity Outlook for 2020
by Michael Youren
Jan 13 2020

As Australia takes its first steps into a new decade, IBISWorld has evaluated the outlook for the raw commodities that make up the backbone of the domestic economy. Amid heightened Middle East tensions, African swine flu and ongoing drought, the price outlook for Australian exports is front of mind for many industries. According to IBISWorld Senior Industry Analyst Michael Youren, falling prices of iron ore, coal, aluminium, oil and natural gas are likely to weigh down the Australian economy, which is already struggling amid weak household consumption expenditure and ongoing bushfire damage.

Iron Ore

  • The price of iron ore is forecast to decline in 2020.
  • Overall export earnings are expected to grow.

Operators in the Iron Ore Mining industry are forecast to face lower iron ore prices over the year through December 2020. After surging in 2019 on the back of production shortfalls and abrupt supply shocks, the price of iron ore is expected to shift downwards by 23% to $89 per tonne in the current year (in AUD terms).

“Iron ore supply shortages driven by the tailings dam collapse in Brazil are expected to be worked through over the course of the coming year, reducing prices for the commodity. However, export volumes and earnings in Australia are expected to grow as production capacity increases,” said Mr Youren.

Coal

  • Thermal coal export revenue is expected to decline as prices fall in 2020.
  • In contrast, metallurgical coal export revenue is expected to rise, despite a decline in prices.

The Black Coal Mining industry, which produces metallurgical and thermal coal, has a volatile outlook for the year ahead. The price of thermal coal is expected to decrease by 25% to $103 per tonne in 2020 due to contractions in Chinese demand. China is currently restricting coal imports into the country as they attempt to manage domestic prices.

“Furthermore, demand from Japan is expected to decrease as their nuclear power generation program comes back online. This is a threat to Australia, as China and Japan represent our two largest coal export markets,” said Mr Youren.

Metallurgical coal, also known as coking coal and used to refine various metals, is expected to decline by 18% to $222 per tonne. This trend follows large declines in value over the past year, largely as tariff uncertainty influenced production.

 “Ongoing US-China trade disruptions are expected to exert downward pressure on demand. However, this factor could quickly change if the trade war was resolved,” said Mr Youren.

Aluminium

  • Aluminium prices are forecast to decrease in 2020.
  • Aluminium export revenue is expected to decrease.

The Bauxite Mining industry and Alumina Production industry are both likely to be affected by a decrease in aluminium prices in 2020. The global price of aluminium is expected to fall by 7% to $2,414 per tonne. Australia is the world’s largest exporter of bauxite and alumina, which are key inputs used to manufacture aluminium products. Domestic production volumes are expected to remain largely unchanged, leading the overall value of exported aluminium to fall, as prices decrease.

 “Slowing world economic growth and reduced demand from China are expected to drive lower prices. Furthermore, global supply is expected to increase with Brazil’s output expected to rise after 19 months of restricted operations,” said Mr Youren.

Gold Prices

  • Gold price is expected to increase in 2020.
  • Export volumes are expected to increase by 5%, to 337 tonnes.

The Gold Mining industry is expected to benefit from ongoing growth in the price of gold over the course of the current year. The price of gold is currently near record highs at $2,200 per ounce due to rising global concerns about financial and political instability. Gold is heavily demanded by speculators as a safe haven asset. The price is forecast to rise by 3.5% to $2,093 per ounce in 2020. Both export volumes and export revenue are expected to increase over the next year. Australia is the second largest producer of gold, with domestic mines producing approximately 9% of global supply.

“Gold prices have been driven upwards by rising political and financial uncertainty in the United States and geopolitical risks in the Middle East. Amid the longest bull market in United States history, many investors seem to be bracing for an inevitable downturn,” said Mr Youren.

Gas

  • LNG prices are forecast to decline slightly over the coming year.
  • The value of exports is expected to decline.

Operators in the Oil and Gas Extraction industry are likely to continue facing low liquefied natural gas (LNG) prices in 2020, as prices decline by 2% to $7.70 per MMbtu. Australia is currently the world’s second largest LNG exporter. LNG prices reached record lows in the September 2019 quarter, due to the arrival of anticipated overcapacity in the LNG market.

“The global market is expected to be oversupplied in 2020, due to an influx of supply from new gas projects in the United States, Russia and Australia. Additionally, demand from Japan and South Korea is expected to decline,” said Mr Youren.

Demand for LNG in China is expected to rise at a slower rate, due to increased production from a previously offline gas terminal, greater gas stockpiles following improved storage infrastructure and slower growth in domestic demand for gas.

Oil

  • Price of crude oil is expected to fall in 2020.
  • Total export earnings are expected to increase.

Low crude oil prices are expected to continue to hinder the Oil and Gas Extraction industry in the coming year. Global crude oil production is expected to increase as the year continues, driving prices lower globally. This trend follows price falls of around 10% over the past year, even despite temporary price increases following attacks on Saudi Arabian production sites in September 2019. Overall, oil prices are expected to fall by 2% to $91 per barrel in 2020.

Global output decreased mainly due to the Vienna Agreement, whereby OPEC and selected significant oil producers agreed to cut crude production in December 2018.

“Cuts were agreed upon mainly to reduce the impact of seasonally low consumption and constrain price falls. We expect the total value of Australian oil exports to increase as these restrictions ease in 2020,”  said Mr Youren.

 

Beef

  • Beef prices are expected to increase over the coming year.
  • The total value of Australian exports is expected to increase.

The Beef Cattle Farming industry is expected to perform well in 2020, as saleyard prices rise by 12% to $5.00 per kilo on average.

“Forecast increases in beef prices are partly attributable to African swine fever, which has increased demand for all proteins to be used as substitutes for pork. The availability of pork has decreased significantly, with some projecting that China’s pig herd will decrease by as much as half in 2020,” said Mr Youren.

Consistently dry conditions in cattle producing regions of Australia have led to a decline in Australia’s cattle herd. Increased slaughter rates in previous years, due to farmers’ inability to support larger herds, are expected to result in lower slaughter rates in 2020. Herds will need to be rebuilt first to reach previous output levels. Despite decreased export volumes, higher prices are forecast to increase the value of Australian beef exports.

Pork

  • Prices for pork are expected to increase globally in 2020.
  • Total volume and value of pork exports are forecast to grow.

Operators in the Pig Farming industry in Australia have so far avoided the virus outbreak that has plagued many other pork producing countries. As a result, exporters will likely enjoy higher pork prices over the coming year due to decreased global competition. Overall, the saleyard price for pigs is expected to rise by 30% to $3.53 per kilogram on average. However, local pig farmers will continue to be hindered by drier conditions and higher feed prices.

“Currently pork exports account for around 10% of domestic production, but that may increase as higher global prices drive increased export volumes. However, due to higher production costs locally, Australian pig meat is not expected to become competitive enough to significantly increase export volumes,” said Mr Youren.

 IBISWorld reports used to develop this release:

For more information, to obtain industry reports, or arrange an interview with an analyst, please contact:
Jason Aravanis
Strategic Media Advisor – IBISWorld Pty Ltd
Tel: 03 9906 3647

Email: jason.aravanis@ibisworld.com