Australian coal, iron ore on the cusp of a robust momentous 2020-21

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 Australian coal, iron ore on the cusp of a robust momentous 2020-21

Summary

  • Australian annual resource and energy exports are forecast to grow to $279 billion in 2020-21.
  • Resource and Energy Export Values Index has declined by 0.8 percent in comparison to the previous year.
  • Thermal Coal prices are expected to rise in 2020-2021, whereas iron ore prices are expected to stay above US$100 per tonne until mid-2021.

Annual resource and energy exports will grow to $279 billion in 2020-21 and $264 billion in 2021-22, as per the Australian Resources and Energy for December quarter. The Australian mining sector contributes around 10 percent of the country's GDP and makes up more than 50 percent of the country's total exports. China, Japan, and South Korea remain the major resource markets for Australia.

The Resource and Energy Export Values Index has declined by 0.8 percent in comparison to the last year’s data. The Resource and energy export volume is set to rise, whereas earnings from the exports are expected to be on the lower side due to lower forecast iron-ore prices in 2021-22, after touching a record high of seven years. On the flip side, thermal coal prices are expected to recover.

Australian Iron Ore Industry:

Australia is the world's largest owner and producer of iron ore with annual exports worth more than $100 billion. China, India, and the European Union are the major consumers of iron ore in the world. China consumes around 57 percent of the world's iron ore. Around 68 percent of Australia's iron ore production is exported to China.

A sharp rising trend in the prices of iron ore has been observed in the past months, which started from the mid-2020 to reach a record high of US$157 per tonne on 11 December 2020. The jump in the prices has been mainly due to the robust demand from the Chinese steel industry. The easing of lockdown measures, economic stimulus, and the rollout of vaccines, are among other significant reasons for the soaring iron ore prices. Additionally, the restricted supply from Brazilian Vale, the other significant feeder of the Chinese steel industry, due to troubles in regulatory approvals along with lower production forecast reduced by 30-35 m tonnes, has also added fuel to the Australia-China iron-ore trade to shoot up the iron ore prices.

Low prices of metallurgical coal in China also provides extra leverage to steelmakers to pay more price for iron ore.

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The iron ore prices are expected to stay above US$100 per tonne till mid-2021, after which, the prices are expected to ease down to US$75 by 2022 end.

Australian Thermal Coal Industry

Australia holds the fourth largest black coal resources in the word and is the second largest thermal coal exporter. Australia exports around 75-80 percent of its total produced coal. China, India, and the U.S. are the major consumers of coal in the world. China imports around 20 per cent of its total imported coal from Australia, worth over $4 billion.

A stable trend in coal spot prices was observed in December quarter due to huge production cuts from the major exporting countries. A sharp decline of 13 percent in 2020 is expected in the export volume of Indonesia due to the decline in China's coal imports. A 5.8 percent decline in Russia's 2020 export volumes is expected. Columbia's export is expected to drop by 21 percent due to a prolonged strike at Cerrejón coal mine, which was started on 31 August 2020. The U.S. coal exports are expected to fall by 35 percent in 2020 due to the challenges in cost and infrastructure.

A fall in global coal demand, led by India and Europe, was also observed. The pandemic’s impact on the global economic activity has decreased the demand from top consumers, including India. In addition to that, the buzzing shift to clean energy, especially across Europe, has also pushed the coal exporting countries to cut their production. Compounding to that, a month back, Beijing had banned Australian coal import, boycotting 80 conveyor boats stuck at Chinese port, which slightly surged the prices.

The prices are expected to recover in 2021, 2022 as the global economy starts to bounce back from the effects of coronavirus. Nevertheless, the move to switch from coal to cleaner and greener energy sources, along with the self-dependence drive in others, is expected to keep world trade of thermal coal under 2019-levels.

 

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