Resources reporter, Tony Grant-Taylor, takes a closer look through the headlines to see what the analysts are forecasting for the future of the resources industries.
It would be a brave call to suggest that the worst of the recent commodity price slides are behind us. As this was written there had been a couple of small, tentative rallies in the iron ore price. And the oil price was well off its late March low – though as it drifted back below US$60 it remained a shadow of its US$100 mid-2014 self.
A few optimists interpreted these moves as early green shoots of recovery. But, at the other end of the spectrum, there were those who saw no evidence of any sustained up-tick in the short to-medium term. Mark Cully, the Chief Economist at the Federal Department of Industry and Science’s Office of the Chief Economist – which has absorbed former commodity forecaster, the Bureau of Resources and Energy Economics – remains, however, a longer-term optimist.
In the Office’s March update on the mining and energy industries and a presentation to a recent meeting of Australian Business Economists, Cully acknowledged that, “in the past five years, global investment (with Australia contributing over $400 billion) had seen a surge in the availability of most commodities.” And with a parallel slowdown in consumption growth, “most markets are now oversupplied, sending commodity prices into a downward spiral.”
Cully predicts, however, “that China’s steel production will continue growing over the medium term.” His forecasters concede steel prices: “in 2015 and 2016 will (likely) remain low.” On a more positive note they see a, “rebound in iron ore prices (from around the US$50 level) over the medium term as higher cost producers exit the market and demand continues to grow.”
It’s worth remembering that iron ore was selling at well over US$100 not so long ago.
On another front, Cully’s forecasters also reckon predictions that the thermal coal industry’s days are numbered will prove well wide of the mark. He told the Business Economists meeting, “We believe coal market forecasts are being increasingly made on romantic scenarios of the future, rather than through an informed process of evaluated investment in electricity generation.”
“Barring major policy adjustments, we expect coal fired power to remain a primary source of generation in countries like India and China, with a large volume of new coal-fired capacity under construction or approved.” He added, “Due to the relative abundance, low-cost and geographic dispersion of coal resources, and the reliability of coal-fired (power) technology, we expect demand for coal to increase over the medium term.”
While China will remain a major consumer, Cully reckons India’s rapidly increasing consumption will, in the medium term, make it a viable bulk export market.
Meanwhile, he points out, “Japan is increasing its coal fired generating capacity and electricity output following the shutdown of its nuclear power industry.
“South Korea and Taiwan are also increasing their coal demand while Indonesia (currently a massive thermal coal exporter) and Malaysia, Vietnam and Thailand are increasing their coal use by even more.”
Further, “countries that have previously had low or no coal use in their energy mix in Asia have star ted to invest in new generators. These include highly populated countries such as Bangladesh and Pakistan that currently have very low electricity consumption per person.”
Australia’s thermal coal exports are projected to increase over the next five years to, “reach 234.4 million tonnes, providing earnings of roughly A$16.1 billion (in 2014-15 dollars) in 2019-20.” Australia exported around 200 million tonnes of thermal coal in 2014.
Meanwhile, as Australia’s new LNG plants ramp up in Queensland and Western Australia, gas exports are projected to increase significantly – “to reach 76.6 million tonnes generating earnings of roughly A$46.7 billion (in 2014-15 dollars) in 2019-20.”
By then, Australia will be the world’s largest LNG exporter and having seen 6 per cent a year growth from 2014-15, mineral and energy commodities will earn $240 billion (in 2014-15 dollar terms).
Source: Tony Grant-Taylor, SPIRIT Regional Australia