Coal is Australia’s most valuable export in 2018

24-Dec-2018

Coal will replace iron ore as Australia’s most valuable export this financial year as supply concerns lead to a steep price rise for the core commodity.

The Department of Industry, Innovation and Science’s latest Resources and Energy Quarterly report said thermal and coking coal export values would reach $67 billion in total in 2018-19, slightly higher than iron ore’s $61 billion in value.

Coal leapt over iron ore as supply concerns ratcheted up the price. It is the first time coal has overtaken iron ore in value since the mining boom five years ago.

Australia is also expected to overtake Qatar as the world’s largest LNG exporter in 2019, buoyed by increasing export values, which grew from $31 billion in 2017-18 to $50 billion this financial year.

The Department was more optimistic in its forecasts than its reports released earlier this year, broadly lifting earnings expectations across most commodities for 2018-19.

It increased total export earnings by about $12.1 billion compared to the previous quarter’s forecasts and tipped earnings to reach a record high of more than $264 billion in 2018-19.

“The weaker Australian dollar, high coal prices and rapid growth in LNG exports are driving the strong figures,” it said.

The weak exchange rate added about $7.4 billion to export values, “while higher-than-expected coking coal and iron ore prices account for the rest of the gain”, the report said.

Coal’s rise comes despite growing public opinion against the mineral, particularly for thermal coal which is used in power generation. There has been less opposition to coking coal as it is used to make steel.

Indian miner Adani has faced a massive backlash from the public and the Queensland state government as it attempts to develop the Carmichael thermal coal mega-mine in Queensland, while many Australian banks are now refusing to provide loans to develop new thermal coal mines in Australia.

Despite achieving a record year, lower demand from China would see earnings fall in 2019-2020 to $241 billion, although this would still be the second highest year on record.

Chief economist Mark Cully warned the ongoing trade war ignited by US President Donald Trump against China posed a threat to export growth.

“The world is nine years into the post-GFC recovery, and the peak of the current cycle has clearly passed,” Mr Cully said.

“Trade tensions between the US and China are magnifying economic risks.

“The key risk to the commodity outlook thus lies in the ‘double whammy’: the potential dual impact of growing trade tensions and a slowdown in economic activity.”

Mr Cully said the rate of decline depends if China could maintain a steady rate of growth.

Coal and iron ore’s growth is forecast to come to an end in 2019-20, although LNG will remain relatively flat.

Coking coal values will drop about $10 billion, falling from a record high of $41 billion this year down to $30 billion next year. Supply disruptions had pushed the price up to $US220 a tonne in the last quarter of the year, well above the 2018 average price of $US207 a tonne. This average price is forecast to fall sharply next year to $US145 a tonne.

Thermal coal will see a less dramatic fall, slipping about $5 billion from $26 billion down to $20 billion in value. Declining Chinese demand will see the price fall from around $US105 a tonne in 2018 down to $US74 a tonne in 2019.

Iron ore prices are expected to slide from $US57 a tonne this year down to $US53 next year before stabilising at about $US51 a tonne in 2020. This is due to declining Chinese demand coupled with an oversupplied market. This will drive down export earnings from $61 billion this year down to $57 billion next year.

LNG will stay flat, dropping from $50 billion down to $49 billion in value. The decline will be driven by falling prices, despite export levels rising from 62 million tonnes in 2017-18 to 78 million tonnes in 2019-20.

Source: THE SYDNEY MORNING HERALD