Resources and Energy Quarterly – March 2021
- The outlook for Australia’s mineral exports continues to improve, as the world economy rebounds from the impact of the COVID-19 pandemic. Australian miners have found their product in high demand, helped by the impact of government and central bank measures abroad.
- In 2020–21, export earnings are forecast to be a record $296 billion, slightly higher in real terms than the record set in 2019–20. Earnings will fall modestly (down 3% to $288 billion) in 2021–22, and then steady at about that level over the rest of the outlook period (to 2025–26).
- Australia’s resource sector is set to capture the growth in demand for resources from new and low emission technologies.
Steel production is likely to be robust in 2021 – Global steel production is now fully recovered, with global monthly production 6% higher in December 2020 relative to the pre-COVID level of December 2019.
Growth outside China is expected to pick up – Substantial new steelmaking capacity is planned across Southeast Asia, with many nations announcing new or upgraded steel plans. Some of these growth plans have been disrupted by the COVID-19 pandemic. However, China’s Belt and Road initiative is likely to provide expanded funding sources for new steelmaking across Southeast Asia over the coming years.
The rapid economic development of China — starting at the beginning of the century, and helped significantly by that nation’s admission to the World Trade Organisation — brought about the last commodity super-cycle. With a similar sized (but younger) population, India could eventually replicate China’s extraordinary demand for resource and energy commodities.
Global iron ore markets are expected to remain tight, with slow growth in both supply and demand over the next five years. Market structure is not expected to alter significantly, with Australia’s market share expected to hold up. A recovery in Brazilian supply is likely in the short-term, but a number of high-cost mines in Brazil and China are also expected to face closure or depletion over the next 10 years.
High entry costs present a significant curb on new competition. The dominant firms have scaled down investment in recent years, in an attempt to reduce debt and adjust to (at the time) relatively low prices and strong supply conditions
BHP and Rio Tinto are bringing new mines to production in the Pilbara region of Western Australia, but much of the resulting output will substitute for depleting mines in the same area (see Australia section). Consequently, overall output growth is not expected to occur at a pace which reduces prices significantly.
Rio Tinto’s new Koodaideri mine has an even larger potential, and is ramping up towards an output of around 40 million tonnes per year from 2022. Other sources of new output include Magnetite Mines’ Razorback project in South Australia, Strike Resources’ Paulsens East project in Western Australia, and Grange Resources’ proposed expansion to its mine in Tasmania.
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