Energy & minerals prices to dip in second half: ABARE

Its latest Australian Commodities report states that in 2011 prices are generally forecast to increase, assuming a strengthening of world economic activity during the year.
Over the next 18 months, continued demand from emerging economies such as China and India is expected to drive growth in consumption of energy and minerals commodities. Earnings from these exports are forecast to increase by 29 per cent in 2010-11 to around $170 billion, which reflects forecast higher prices especially for bulk commodities and increased export volumes.
In the second half of 2010, lower prices will mainly stem from the expected effect of the European debt crisis on economic growth in Europe, and the intention of the Chinese Government to slow its rapid economic growth to a more sustainable pace.
In addition, a relatively high level of stocks for most metals will place downward pressure on prices. For example, official London Metal Exchange (LME) stocks of zinc stood at around 618 kilotonnes in late June 2010, the highest since June 2005. Also, official LME stocks of aluminium were at 4.5 million tonnes in mid-2010, which is more than three times their average over the five years to 2009.
Australian mine production is estimated to rise by 5 per cent in 2009-10, reflecting increased production of energy commodities, metals and other minerals. In 2010-11, mine production is forecast to rise by a further 8 per cent, in line with increased demand and forecast higher prices for a number of commodities, including iron ore.
Production of energy commodities is estimated to increase by around 6 per cent in 2009-10, reflecting increased production of metallurgical coal, natural gas and thermal coal. In 2010-11, production of energy commodities is forecast to increase by 7 per cent, largely reflecting increased metallurgical and thermal coal production.
In 2009-10, Australian export earnings from energy and minerals commodities are estimated to fall by 18 per cent to around $132 billion, despite forecast higher export volumes. This mainly reflects lower bulk commodity contract prices for Japanese Fiscal Year 2009 (JFY, April 2009 to March 2010), and a significantly higher value of the Australian dollar.
In 2010-11, expected higher export volumes and prices are forecast to result in Australia’s export earnings from energy and minerals commodities rising by 29 per cent to around $170 billion.
Export earnings from energy commodities are forecast to increase by 28 per cent to $71 billion in 2010-11, reflecting forecast higher export earnings for metallurgical coal and thermal coal.
Export earnings from metals and other minerals in 2010-11 are forecast to increase by 29 per cent to around $99 billion, being largely supported by expectations of increased iron ore earnings.

Excerpts from ABARE’s Australian Commodities – June quarter 2010

Iron ore
In 2010, world trade of iron ore is forecast to increase by 9 per cent to 1 billion tonnes.
In 2011, world trade of iron ore is forecast to increase by a further 7 per cent to 1.1 billion tonnes. The majority of increased trade in 2010 and 2011 is expected to be supplied by Australia and Brazil.
Australia’s iron ore export volumes in 2009-10 are estimated to increase by 20 per cent to 389 million tonnes. However, export earnings are forecast to fall by 7 per cent to $31.7 billion reflecting the significant fall in contract prices for JFY 2009.
In 2010-11, Australia’s iron ore export earnings are forecast to increase by 50 per cent to $47.7 billion.

Thermal coal
In 2009-10, Australia’s thermal coal production is estimated to increase by 4 per cent to 213 million tonnes.
In 2010-11, thermal coal production is forecast to increase by a further 10 per cent to 234 million tonnes.
Australia’s exports of thermal coal in 2009-10 are estimated to increase by 1 per cent to 137 million tonnes. In 2010-11, the scheduled completion of two large coal infrastructure projects in New South Wales—the Newcastle Coal Infrastructure Group (NCIG) Terminal (30 million tonnes a year) and the upgrade of Port Waratah Coal Services (PWCS) Kooragang Island Coal Terminal (11 million tonnes)—is forecast to underpin Australian exports reaching 155 million tonnes.
Earnings from thermal coal exports are estimated to decline by 32 per cent to $12.2 billion in 2009-10, mainly as a result of the significantly lower contract prices for JFY 2009 and the appreciation of the Australian dollar. In 2010-11, the value of thermal coal exports is forecast to rise by 29 per cent to $15.8 billion because of sharply higher contract prices negotiated for JFY 2010.

Metallurgical coal
In 2010, global trade of metallurgical coal is forecast to increase by 10 per cent to 234 million tonnes, which is 1 per cent lower than trade in 2008. In 2011, world trade of metallurgical coal is forecast to increase by 7 per cent to 251 million tonnes.
Australia’s metallurgical coal export volumes are estimated to increase by 21 per cent to 151 million tonnes in 2009-10. However, export earnings decreased by 36 per cent to $23.5 billion reflecting lower contract prices for JFY 2009 and an appreciation of the Australian dollar.
In 2010-11, Australia’s exports of metallurgical coal are forecast to increase by 1 per cent to 152 million tonnes.
Australian export earnings from metallurgical coal in 2010-11 are forecast to increase by 46 per cent to $34.5 billion. This will be underpinned by expected increased export volumes through newly developed infrastructure capacity, combined with higher forecast prices.

Gold
In 2011, the price of gold is forecast to fall by almost 10 per cent to $US1010, as investor demand for lower risk assets wanes in response to an assumed improvement in global economic conditions during the year.
World gold mine production is forecast to grow by 3 per cent to 2,641 tonnes in 2010, and Australian mine production is also forecast to increase strongly.
Australia’s gold mine production in 2009-10 is estimated to increase by 10 per cent to 239 tonnes.
A further increase in Australia’s gold production of 13 per cent to 269 tonnes is forecast in 2010-11, largely reflecting the ramp-up to full production of Newmont’s Boddington project.
Following a record 437 tonnes of gold exported in 2008-09, the volume of Australia’s gold exports is estimated to fall by 22 per cent to 342 tonnes in 2009-10.
In 2010-11, gold export volumes are forecast to rise by 29 per cent to 441 tonnes.
Reflecting the large decline in export volumes, the value of Australia’s gold exports in 2009-10 is estimated to decrease by 17 per cent to $13.4 billion. In 2010-11, export earnings from gold are forecast to rise by 26 per cent to $16.9 billion, reflecting higher export volumes.