Dec 22 2020
As Australia begins to overcome the COVID-19 pandemic, IBISWorld has evaluated the outlook for the mining and energy commodities that make up the backbone of the domestic economy. The price outlook for Australian exports is front of mind for many industries amid ongoing disruption due to the COVID-19 pandemic and worsening relations with China. According to IBISWorld Senior Industry Analyst James Thomson, falling prices of iron ore, coal and gold are likely to weigh down the Mining sector in 2021, while a moderate rebound in the price of liquefied natural gas is forecast to provide some support.
- The price of iron ore is expected to rise 7.4% in nominal USD terms in 2021.
- However, the price of iron ore in local currency terms is expected to decline by 4.6% due to the appreciation of the Australian dollar.
Global iron ore prices have surged over the past six months, and are expected to remain elevated in 2021. Ongoing supply constraints and strong stimulus spending in China are expected to continue to drive demand for Australia’s largest export.
‘Despite the serious trade tensions between China and Australia, iron ore exports are expected to rise by 2.3% in 2021, to 896 million tonnes. The Iron Ore Mining industry is expected to benefit from expansion at multiple projects in the Pilbara,’ said Mr Thomson.
Earlier this month Vale, a Brazilian iron ore miner, announced a downgrade to its iron ore production guidance in 2021. This is expected to support iron ore prices and increase China’s reliance on Australian suppliers.
- The export price of Australian thermal coal is expected to decline by 12.4% in 2021, while the metallurgical coal export price is expected to decline by 9.7%.
- A significant proportion of Australian thermal coal production was lossmaking in the December quarter.
The outlook for Australian coal in 2021 is bleak, following China’s recent announcement of import restrictions on Australian thermal coal. Metallurgical coal, which is used for steel production, may also be subject to import restrictions in 2021.
‘The outlook for coal prices is highly uncertain, as it is dependant on China’s import policies. Australian miners will have a clearer idea of the outlook for 2021 by the end of January, as the presence or absence of annual supply contracts with Chinese power stations and steel mills becomes clear,’ said Mr Thomson.
The Coal Mining industry is expected to contract by 6.9% in 2020-21, to $67.8 billion. Industry revenue may decline further if Australia fails to find alternative markets for coal exports outside of China.
‘While many ships continue to wait offshore from China to offload Australian coal, some Australian exporters have abandoned the market and increased cargo deliveries to alternative markets, such as India. Given the scale of Australia’s coal exports to China, it will likely take many months to find alternative buyers,’ said Mr Thomson.
- The price of gold is expected to fall by 10.3% in 2021, to $2,265 per ounce
- A recovery from COVID-19 is expected to reduce safe-haven demand, while ongoing money creation may spur inflation concerns.
The Australian price of gold is expected to fall from its record high achieved in August 2020, as a global economic rebound from COVID-19 drives investors to transition wealth into riskier assets, such as equities and property.
‘The price of gold in AUD terms reached a record high in 2020, which provided massive benefits to the Gold Ore Mining industry. In 2021, the gold price is expected to fall but remain elevated relative to the level seen over the past decade,’ said Mr Thomson.
While an economic rebound may reduce demand for safe-haven assets such as gold, investor demand will likely continue to support prices.
‘Concerns regarding the enormous national deficits incurred in response to the COVID-19 outbreak around the globe are likely to drive investors to retain gold in their portfolios, ensuring the gold price will remain somewhat elevated. Low interest rates are also expected to continue to reduce the opportunity cost of owning gold, relative to other safe assets such as bonds,’ said Mr Thomson.
Oil and Gas
- The Australian export price of liquefied natural gas is expected to rise from $5.50 per gigajoule in 2020 to $7.20 per gigajoule in 2021.
- The global price of oil is expected to rise by 15.9% in 2021.
The Australian export price of liquefied natural gas is expected to recover moderately in 2021, as a global recovery from the effects of the COVID-19 pandemic leads to a rebound in demand. However, rising supply of LNG from the United States is expected to dampen the price rebound.
‘The Oil and Gas Extraction industry is expected to rebound in the second half of 2021, as the effects of COVID-19 subside and technical issues at the Gorgon and Prelude LNG projects are resolved,’ said Mr Thomson.
Australia’s oil export volume is expected to rise by 5.9% in 2021, while oil export revenue is anticipated to increase by 12.8%. While domestic production of crude oil and condensate is expected to rise over the next two years, Australia’s ability to manufacture fuels and petroleum products domestically is projected to decline.
‘In October 2020, BP announced the conversion of the Kwinana fuel refinery into a fuel import terminal. This leaves Australia with only three fuel refineries and a high reliance on foreign suppliers. The long-term viability of the remaining refineries is also under investigation,’ said Mr Thomson.
IBISWorld reports used to develop this release:
- Mining in Australia
- Iron Ore Mining in Australia
- Coal Mining in Australia
- Gold Ore Mining in Australia
- Oil and Gas Extraction in Australia
For more information, to obtain industry reports, or arrange an interview with an analyst, please contact:
Strategic Media Advisor – IBISWorld Pty Ltd
Tel: 03 9906 3647