Resource projects bringing billions of dollars into Australia will underpin the country’s strong economic growth this year, a report shows.

Economic growth and increasing revenue have been driving global business activity for some time. Recent events have shown that this positive trend is being realized in the banking sector as well. With an increasing number of businesses looking to raise funds, it’s essential for potential investors to understand the factors that fuel growth in an increasingly competitive environment.

Source Bloomberg: Australia’s earnings from energy and mining exports are forecast to set another record in the next 12 months, driven by an accelerating global economic recovery from the pandemic.

They are forecast to rise by nearly 8% to A$334 billion ($254 billion) in the year to June 30, 2022, “propelled by ongoing dwelling and infrastructure spending in many countries,” the Department of Industry, Science, Energy and Resources said in its latest quarterly report. Exports earnings in fiscal 2021 are seen at a record A$310 billion.

But next year could prove to be the peak of the commodities upswing, with the government expecting revenues to moderate to A$304 billion in the 2023 fiscal year as economic growth starts to cool and prices soften as a result. The report also noted downside risks to its forecasts from a potential spike in global inflation and a sharper-than-expected tightening of monetary policy by major central banks, as well as delays in the rollout of Covid-19 vaccines.

“Another downside risk is the extent of further disruption to Australian resource and energy commodity trade with China, which took 45% of such Australian exports in 2020,” the report said.

KEY POINTS
Iron ore export revenues are seen at A$149 billion in fiscal 2021, revised up from A$136 billion projected in March, due to stronger-than-expected demand from China and record prices. They are seen dipping to A$137 billion in fiscal 2022. Prices are forecast to average around $150 a ton in 2021, before falling to below $100 by the end of 2022 Forecast LNG export earnings have been revised up by A$5.3 billion in fiscal 2022 to A$49 billion, reflecting higher spot prices and oil-linked contract prices. Volumes are also expected to increase in the year ahead as technical issues at Chevron Corp.’s Gorgon and Royal Dutch Shell Plc’s Prelude facilities are resolved. Prices are expected to average $9.38 per million Btu in 2022, and $8.63 in 2023. Thermal and metallurgical coal exports are seen rising both in volume and revenue terms as prices recover. Steel-making coal earnings are seen at A$30 billion next year, revised up by A$3.8 billion from the March report, while the forecast for thermal coal revenue was marked up A$4 billion to just under A$21 billion. Nickel shipments are seen rising by 22% in value in the year ahead on the back of higher production, as new projects come on stream, and further price gains driven by strong demand from stainless steel and electric vehicle manufacturers. The price is forecast to average $17,360 a ton in 2021, 26% higher than 2020. The value of copper exports is expected to nudge up to A$13 billion, although the government sees prices moderating over the longer term from this year’s record peaks. Prices are seen averaging $8,840 a ton in 2021 and $7,890 a ton in 2023 Lithium shipments are forecast to more than double in value over the next twelve months to around A$2 billion on increased production and rising prices for the key battery ingredient.

KEY POINTS

Iron ore export revenues are seen at A$149 billion in fiscal 2021, revised up from A$136 billion projected in March, due to stronger-than-expected demand from China and record prices. They are seen dipping to A$137 billion in fiscal 2022. Prices are forecast to average around $150 a ton in 2021, before falling to below $100 by the end of 2022
Forecast LNG export earnings have been revised up by A$5.3 billion in fiscal 2022 to A$49 billion, reflecting higher spot prices and oil-linked contract prices. Volumes are also expected to increase in the year ahead as technical issues at Chevron Corp.’s Gorgon and Royal Dutch Shell Plc’s Prelude facilities are resolved. Prices are expected to average $9.38 per million Btu in 2022, and $8.63 in 2023.
Thermal and metallurgical coal exports are seen rising both in volume and revenue terms as prices recover. Steel-making coal earnings are seen at A$30 billion next year, revised up by A$3.8 billion from the March report, while the forecast for thermal coal revenue was marked up A$4 billion to just under A$21 billion.
Nickel shipments are seen rising by 22% in value in the year ahead on the back of higher production, as new projects come on stream, and further price gains driven by strong demand from stainless steel and electric vehicle manufacturers. The price is forecast to average $17,360 a ton in 2021, 26% higher than 2020.
The value of copper exports is expected to nudge up to A$13 billion, although the government sees prices moderating over the longer term from this year’s record peaks. Prices are seen averaging $8,840 a ton in 2021 and $7,890 a ton in 2023
Lithium shipments are forecast to more than double in value over the next twelve months to around A$2 billion on increased production and rising prices for the key battery ingredient.

The resources sector is expected to see another strong year, with the mining of iron ore and coal set to reap huge profits from rising commodity prices. The surge in resource prices is expected to continue next year, according to the International Energy Agency.

Rare earth minerals will continue to be a major opportunity for investors and political chess moves between governments. Oil and gas will be another great commodity that will be an investor’s dream and a working man’s reduction in spending power (in effect – inflation).

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Stu Turley, President, Sandstone Group

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