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Nov 20, 2018 / News
What’s next for Australian Resources?
It’s buoyant times in the Australian resources industry, with recent data from the government’s official forecaster, the Department of Industry, Innovation and Science (DIIS) highlighting the importance of commodities for the economy.
As global economic growth remains robust, DIIS estimates that Australia’s commodity export earnings will lift from a record high of $226 billion in 2017–18 to $238 billion by 2018–191.
While the nation’s bulk commodities, iron ore, coking (steel-making, or metallurgical) coal and thermal (electricity) coal doing most of the heavy lifting, after $200 billion worth of investment, it’s liquefied natural gas (LNG) that’s stepping up to join them2.
DIIS expects that by 2022-23, LNG will have risen by 70% to $39 billion, overtaking coking coal to become the second biggest commodities earner after iron ore3. However, exports of gold and base metals, in particular, copper, are forecast to grow more modestly over the same period.
Resilient commodity prices are expected to earn more than $1 trillion for the nation over the next four years, says DIIS4 – a figure that is equivalent to almost 60% of gross domestic product (GDP).
The nation’s commodities bounty is also underscored by the rise of newer minerals, as sectors such as electric vehicles, battery technologies and renewable energy create a demand for lithium, cobalt, graphite, vanadium and nickel. Of which, Australia has the reserves, and the industry capability, to be a major player in world markets for these commodities.
Australia retains status as the world’s largest iron ore exporter
Major iron ore miners are set to retain Australia’s status as the world’s largest iron ore exporter with Australia’s iron ore export volumes forecast to increase from 846 million tonnes in 2017–18, to 887 million tonnes in 2019-205. This increase is driven by the ramp-up in production by the largest producers6.
BHP is moving towards its goal of producing 290 million tonnes a year and has projected that its iron ore production will be between 273 million tonnes and 283 million tonnes in the 2019 financial year7. BHP has commenced its US$3.6 billion ($4.9 billion) South Flank iron ore project in the Pilbara region of Western Australia, a mine that the company predicts will be the biggest it has ever built in terms of annual production. With an estimated production of 80 million tonnes of iron ore a year, this would replace production from the ageing Yandi mine.
Rio Tinto says it’s on track to hit the upper end of its 2018 guidance for iron ore shipments from the Pilbara (330 –340 million tonnes), after shipments in the June quarter surged 14% on the same period last year8. Rio Tinto is soon expected to add to its West Angeles and Robe Valley developments by approving its US$2.2 billion ($3 billion) Koodaideri iron ore mine. Koodaideri would support the production of Rio Tinto’s highgrade Pilbara Blend lump product. With both Pilbara Blend and BHP’s Newman lump grades benefiting from China’s crackdown on the environmental impact of its steel production industry. This is due to the high quality of the products allowing the steel mills to retain productivity and cost efficiency while conforming to the anti-pollution measures.
Buoyant indications in the niche areas of the Australian commodity roll-call
The nation’s leading mineral sands miner, Iluka Resources, which produces zircon and titanium dioxide ores, reported a 21% surge in revenue in the June 2018 half-year on the back of higher prices for its products9. Rare earths miner, Lynas Corporation (Lynas), is making good on its potential to become a major producer to China of rare earths oxides and neodymium and praseodymium (NdPr), and an alternative source of these commodities. Lynas mines the ore at Mt. Weld in Western Australia and separates it at its processing facility in Malaysia. According to Melbourne investment firm, Newgate Capital, Lynas is estimated to produce about 24% of the world’s NdPr, and is the only major producer outside China10.
Similar market drivers are also changing the game for established nickel producers, such as Western Areas, which is now tweaking their businesses to produce nickel compounds which go straight to batteries. These newer metals with high-tech exciting markets are adding to the earnings and export potential – and confidence – of Australia’s resources industry.
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Sources
1. Resources and Energy Quarterly, June 2018, p. ii
2. Australia and the Global LNG Market
3. Resources and Energy Quarterly, March 2018, p. 54
4. Resources and Energy Quarterly, March 2018, p. 1
5. Resources and Energy Quarterly, June 2018, p. 25
6. Resources and Energy Quarterly, June 2018, p. 21
7. BHP Operational Review for the Year Ended 30 June 2018
8. Rio Tinto second quarter operations review
9. Quarterly Review 30 June 2018, Iluka Resources
10. Newgate Absolute Return Fund research note October 2017.
