09-01-2018

2018 ‘the end’ of resources boom as commodity price drops bite

The government has forecast the end of the mining boom, with 2018 marking the tipping point for when producers will see export earnings heading south.

In fiscal 2017, the resources and energy sector is tipped to see record high exports earnings. But this is expected to be short-lived.

Data from the Department of Industry, Innovation and Science released on Monday suggests a bleaker outlook for 2018 with billions less in earnings.

After exports earnings hit a high of $214 billion in 2017/18, they will quickly pull back to $200 billion the following year, the report forecasts.

This earnings decline is thanks to an expected price fall of 12 per cent, which will outpace growth in export volumes.

“2018 marks the end of the remarkable resources and energy investment boom of the past decade,” the department’s chief economist Mark Cully said.

Commodity prices declined in the last quarter of 2017, but this was largely offset by a depreciation in the Australian dollar.

Iron ore, Australia’s biggest export, is under price pressure due to moderation in Chinese steel production and increased supplies from Australia and Brazil. China is the world’s largest steel producer.

Thermal and metallurgical coal are also likely to see falling prices due to rising global supply and moderating demand.

And there will be a substantial decline in the value of committed projects in 2018, the report says, with three large LNG projects worth a collected $100 billion coming to completion.

The projects, Wheatstone, Ichthys and Prelude, are scheduled for the end of 2018 “concluding the current investment phase”.

“Beyond that, a slight uptick in projects that have been publicly announced or under feasibility points to a bottoming in the investment cycle,” Mr Cully said.

The International Energy Agency recently predicted Australia would take on the role of a world energy leader in supplying future energy demand and likely to be one of the main gas suppliers in the transition from coal-fired power to gas.

The government data estimates LNG will add $14 billion to export earnings in 2018/19, after the completion of the three major projects, while iron ore and coal prices would result in earnings declines of $11 billion and $10 billion respectively.

Nine large-scale gas, coal and iron ore projects are likely to be responsible for more than two thirds of potential investment in 2022 and 2023, with challenging market conditions resulting in companies refocusing capital investment towards decreasing the cost of current operations and increasing output, the report said.

Base metals were expected to have a more optimistic outlook than other commodities, with higher demand on the back of global demand for stainless steel, vehicles, aluminium-based packaging and infrastructure development.

Zinc prices are at the highest since 2007, aluminium since 2012, copper since 2014 and nickel since 2015.

Source: The Sydney Morning Herald

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