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Australia is expected to experience a contraction in its commodity export earnings in the coming years due to declining prices of iron ore, liquefied natural gas, and coal, according to government forecasts.
The Department of Industry, Science and Resources quarterly report states that factors such as reduced supply disruptions, relatively soft global economic growth, and a strengthening Australian dollar will contribute to this decline, Bloomberg reported.
However, the report notes an improved outlook for China and reduced concerns about a hard landing in the US.
The department forecasts energy and resources exports to decrease to $408 billion in the year through June 2024, marking a 12% drop from the previous record in the fiscal year 2022-23. The following fiscal, a sharper slowdown is expected with exports of $348 billion in FY2024-25.
Australia's mining sector, which accounts for over 13% of the country's GDP, benefited from the commodity price surge resulting from the Russia-Ukraine conflict, but that boom driven by supply shocks has now subsided.
While the significance of traditional export commodities like iron ore and coal is predicted to diminish over time, Australia aims to increase production of minerals essential to the energy transition, such as lithium, nickel, and copper.
The report mentions that iron ore prices, supported by Chinese measures to stabilize its property market, may retreat in the next two years. Thermal and metallurgical coal prices are also likely to decline, while oil and gas prices have returned to pre-conflict levels due to no fallout on Middle East supply from the Israel-Hamas war.
Although the price of lithium has declined in the past year, the report highlights the growing importance of committed projects for battery metals, which have risen 75% in value to A$5 billion ($3.6 billion) in the past year. These projects now represent 9.3% of the total, equal to the share of iron ore.
Committed resources and energy projects declined 9.3% over the past year to A$77 billion, reflecting an increase in project completions.
The investment outlook for Australia's resources and energy sector remains positive, supported by a combination of new energy and traditional commodities.
(Writing by Riley Liang Editing by Emma Yang)
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