Coal is expected to become Australia’s most valuable export for the first time in nine years in fiscal 2018 ending June this year, as increasing concentration in the mining industry pushes up prices and exports to China and other countries in Asia rise.
Iron ore prices, on the other hand, have continued to decline, dragged lower by falling Chinese demand. The shift in Australia’s resource exports also highlights its dependence on the state of the Chinese economy.
Australia will export 67 billion Australian dollars ($47.8 billion) of coal in fiscal 2018, compared with AU$63.8 billion for iron ore, according to the “Resources and Energy Quarterly” report for December published by the country’s Department of Industry, Innovation and Science.
Coking coal exports are forecast to rise 8.7% from fiscal 2017 to AU$41.1 billion, while thermal coal exports are expected to jump 14.6% from fiscal 2017 to AU$25.9 billion.
Thermal coal, which emits a lot of greenhouse gases as a power source, is not a favorite with environmentalists and policymakers. British-Australian mining giant Rio Tinto sold off its remaining coal assets in August 2018, while Japanese trading houses Mitsubishi Corp. and Mitsui & Co plan to sell their stakes in thermal coal mines, perhaps as early as this year.
“With fewer players, one company is increasing its control over Australian thermal coal prices,” said a representative of a Japanese energy company, referring to Swiss commodities producer Glencore, which has increased its market share by purchasing coal mine interests from Rio Tinto and others.
The Australian Financial Review reported that over the past two years Glencore has spent $3.4 billion on coal projects in Australia, including coking coal, the largest figure in the sector. Australian thermal coal prices, which fell about 15% to $90 a ton between February and April 2018, recovered to $120 in June due to growing demand in China and elsewhere.
Thermal coal prices have risen as the number of players in the industry falls and investment slows. This has sparked concerns about tighter supplies, said one industry player.
But there are longer-term forces pushing in the other direction. China, the world’s largest consumer of coal, is rapidly moving away from coal-fired power to tackle air pollution. As a result, Australian thermal coal prices are expected to fall to $74 by 2020, said an official of the Department of Industry, Innovation and Science.
Iron ore prices are also greatly affected by demand in China, which is the destination for more than 80% of Australia’s iron ore exports. Demand is expected to decline as China moves from blast furnaces, which use iron ore, to electric furnaces, which use scrap iron.
Australian iron ore prices, which are currently around $70 per ton, are expected to fall to an average $53 per ton in fiscal 2019 and to $51 per ton by fiscal 2020, according to the Department of Industry, Innovation and Science. The department says that although the effects of the U.S.-China trade war are relatively minor, Australia’s iron ore exports are forecast to drop 10.8% on the year to AU$56.9 billion in fiscal 2019.
Liquefied natural gas may be the only bright spot for Australia’s resource industry. It is expected to overtake Qatar as the world’s largest LNG exporter in 2019. Australia is expected to ship 77 million tons of LNG in 2019, buoyed by the Ichthys LNG project that began production in late July 2018 and the Prelude project, led by Anglo-Dutch oil producer Royal Dutch Shell, which came on stream in late December.
Australia has avoided recession — defined as two consecutive quarters of contraction — for more than 27 years, the world’s longest winning streak. But conditions in China, the key buyer of the country’s resource exports, will continue to hold huge sway over the country’s economic growth.
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