The December 2022 edition of the Resources and Energy Quarterly (REQ) was released today by the Department of Industry, Science and Resources.
Despite a sharp slowing in world economic growth during 2022, Australia’s resource and energy export earnings are forecast to reach $459 billion in 2022–23, following high global energy prices and a lower Australian dollar. Export earnings are then forecast to fall to $391 billion in 2023–24 as prices for energy commodities moderate, amidst easing supply disruptions and a weaker global economy.
Energy commodity prices have declined but remain above pre-war levels, as markets factor in the looming drop in exports of gas, coal and oil by Russia, one of the world’s largest energy exporters. Northern Hemisphere nations have been successful in rebuilding stockpiles for winter, with weak Chinese energy demand (due to COVID lockdowns) making it easier for Western European countries to fill gas storage.
Oil prices have faced recent downward pressure from a deteriorating global outlook, recurring COVID-19 lockdowns in China and a stronger US dollar. These factors have been partially offset by production cuts by OPEC, but prices are likely to fall back over the outlook period as global supply gradually outpaces demand. The course of the COVID pandemic in China, and Beijing’s response, promises to have a significant bearing on world oil demand.
LNG spot prices are forecast to remain high and volatile over the outlook period, as global gas markets continue to reorganise following the curtailment of Russian pipeline gas supply to Europe. The high oil prices of the June and September quarters are flowing through to Australian long-term (oil-linked) LNG contracts. Export volumes are forecast to decline from 83 million tonnes in 2021–22 to 81 million tonnes in 2022–23 and remain stable over the outlook.
Prices for Australia’s high quality thermal coal remain extremely high, as European nations look to build or maintain stockpiles ahead of the peak Northern Hemisphere winter. Prices are expected to ease over the outlook period, as trade flows reorganise and supply recovers. While supply disruptions have recently lifted Australian metallurgical coal prices, prices are expected to moderate as steel markets continue to weaken; the market will derive some price support from sanctions on Russian coal exports.
The iron ore price is little changed in net terms from the time of the last report. Weakness in world steel output and the Chinese property market have dampened iron ore demand. Iron ore prices are expected to ease further over the outlook period, as world supply lifts faster than demand.
Lithium export earnings are expected to exceed $16 billion in 2022–23, up from $5 billion in 2021–22. This will make lithium Australia’s sixth-largest resource and energy commodity export.
Base metal prices have weakened over the year, as sporadic lockdowns in China affect demand. That said, high energy prices have seen metal smelting and refining activity curbed, especially in Western Europe, partly offsetting the impact of weak demand. Prices should be flat to modestly weaker over the outlook period, as supply slowly catches up with (slowing) demand and stockpiles build.
In volume terms, Australian resource exports are expected to show further growth over the outlook period. World GDP and industrial production will grow modestly, increasing the demand for ferrous and non-ferrous metals.