Resources and energy quarterly: June 2024

Latest developments

Australian resources and energy exports are forecast to continue to ease after the record peak seen in 2022–23.

• The near-term outlook for Australian resource and energy commodity exports has improved slightly in net terms since the March 2024 REQ. Major economies have seen a modest uptick in economic activity, and the outlook is for an improvement in world economic growth in 2025 once monetary policy becomes less restrictive in major Western economies. 
• Relatively weak growth in world demand and rising world commodity supply has seen Australia’s resource and energy exports decline to an estimated $417 billion in 2023–24 from $466 billion in 2022–23. A decline to $380 billion is forecast in 2024–25, as commodity prices drift down further and the AUD/USD lifts. A further modest decline to $356 billion is forecast in 2025–26, as prices start to bottom out.
• Nickel and lithium prices have managed to make modest recoveries as global supply is wound back closer to demand. Gold has hit a new record high since the March quarter 2024, and iron ore prices have steadied as the Chinese government adopts substantive measures to support the real estate sector. 

Latest developments

World steel demand continues to be affected by the elevated interest rate environment in most advanced economies, which has added to weaker industrial output since the start of 2023.

An expected steadying and then gradual pick-up in growth in ex-China global manufacturing is expected to support stronger steel demand over 2024–25.

• World steel demand has fallen for the past 2 years, driven by lower demand from manufacturing and construction in developed economies and ongoing weakness in China’s property sector.
• Growth in world steel production has been flat so far in 2024. However, a gradual improvement in global industrial output and further stimulus-related infrastructure activity should support a pickup in global steel output in the second half of 2024. 
• While China’s residential property sector weakness is likely to persist, less restrictive monetary policies in advanced economies should see Western steel demand recover in 2025 and 2026. However, increasing trade sanctions could disrupt global steel markets. 

Latest developments

Iron ore prices stabilised in the June quarter after large falls early in 2024.

Prices have been supported by strengthening of forward indicators of Chinese industrial production and Chinese government measures to support growth.

• Spot iron ore prices have stabilised in recent months, following price falls of around 30% in the March quarter 2024. The recent recovery reflects inventory restocking and improved demand sentiment — given strengthening forward indicators of Chinese industrial production.
• Australian export volumes moderated in the March quarter, because of a combination of weather disruptions and maintenance and capital works at key operations. As more greenfield supply comes online from existing and emerging producers, export volumes are forecast to increase by 2.3% annually over the next two years.
• Lower prices projected over the outlook period will reduce Australia's iron ore export earnings from $138 billion in 2023­–24 to $114 billion in 2024–25 and $102 billion in 2025–26. 

Latest developments

Metallurgical coal markets have stabilised over the June 2024 quarter as weather related supply disruptions eased. Seaborne metallurgical coal import demand is expected to hold steady in 2024 before experiencing modest increases from 2025.

Weak steel demand from China’s property sector is expected to be counteracted by increased demand from India’s steel industry. Supply will be influenced by a potential recurrence of the La Niña cycle and the impact of sanctions on Russia.

• Australia’s metallurgical coal export earnings are expected to decline from $61 billion in 2023–24 to $42 billion by 2025–26.
• Metallurgical coal prices are falling slowly as supply disruptions ease. Prices are expected to decline from US$264 a tonne in 2024 to US$208 a tonne by 2026. 
• Export volumes are expected to increase from 156 Mt in 2023–24 to 177 Mt by 2025–26 (see Australia section). A potential recurrence of the La Niña cycle presents a risk to supply.

Latest developments

Thermal coal markets have been relatively tight: demand from China is greater than expectations, secondary sanctions against Russia are beginning to take effect, and unexpectedly hot weather across several Asian markets has boosted power demand.

• Australia’s thermal coal export earnings are expected to ease from $37 billion in 2023–24 to around $28 billion by 2025–26 as prices fall.
• Thermal coal spot prices are expected to gradually decline over the outlook period, from US$136 a tonne in 2024 to US$115 a tonne by 2026. Contract prices are expected to fall from around US$200 a tonne (in Japanese financial year 2023–24), converging on spot prices.
• Export volumes are expected to be stable at around 205 Mt over the outlook period. A potential recurrence of the La Niña cycle presents a risk to supply.

Latest developments

Gas markets have stabilised over the past few quarters, but 12 consecutive months of record global average temperatures have pushed up Asian LNG demand, adding to recent price pressures. 

• Australia’s LNG export revenues are forecast to decline from $69 billion in 2023–24 to $59 billion by 2025–26. Export volumes are expected to decrease slightly from a strong level in 2022–23 as some gas reserves start to deplete.
• The fall in export earnings will be largely driven by lower LNG prices, which have already fallen significantly from the record levels of 2022.
• New supply from the US and Qatar should help to bring LNG prices down from US$13.9/MMBtu in 2023 to US$11.5/MMBtu by 2026.

Latest developments

Crude oil prices have stabilised following a sharp increase in April as perceived geopolitical tensions ease.

Over the outlook export revenues are expected to fall as prices and output fall.

• The Brent crude oil price is projected to fall from an average US$83 a barrel in 2023 to US$78 a barrel in 2026. The fall is expected to be driven by both weak demand and gains in ex-OPEC production.
• Australia’s crude and condensate production is projected to fall steadily, from 276,000 barrels a day in 2023–24 to about 252,000 barrels per day by 2025-26, as mature fields see diminishing output.
• Australia’s crude and condensate export earnings are projected to fall from A$13.2 billion in 2023–24 to A$9.6 billion by 2025–26, as prices fall and output declines. 
   

Latest developments

Lithium price and therefore export earnings is expected to remain subdued over the outlook as EV sales growth slows.

• Australia’s lithium export earnings are projected to fall by more than half over the forecast period — from $20 billion in 2022-23 to $9.1 billion in 2025-26. The fall is set to be driven by weaker lithium prices, which are expected to be partially offset by a 53% increase in Australia’s lithium mine production over the outlook period. Export earnings forecasts were revised down from the March 2024 REQ.
• Global lithium demand is projected to rise by 17% a year between 2023 and 2026, driven by the rising adoption of electric vehicles. However, weak Chinese demand and shifting policies in the US and EU could see EV sales growth continue to remain slow.
• Rise in global lithium supply will see the lithium market remain in surplus. Chinese lithium lepidolite production have seen only modest declines despite falls in prices, and there are sizeable project pipelines in Australia and among emerging producers such as Argentina and Zimbabwe.

Latest developments

Uranium export revenue have been revised down slightly as prices have cooled from the highs of early 2024.

Prices are expected to rise slowly through the outlook as structural supply shortfall is expected to persist.

• Prices have settled around US$90 a pound after declining from a peak in early 2024. 
• Price pressures are expected to persist through till 2026, with the price settling at US$99 per pound in 2026.
• Price and volume growth are projected to lift Australian export values from A$1.3 billion in 2023–24 to A$1.7 billion by 2025–26.

Latest developments

Australian gold export earnings have been revised up sharply from the March 2024 Resources and Energy Quarterly, on account of record price outcomes and higher forecast prices.

• Gold prices averaged about US$2,200 an ounce in the first half of 2024, up 15% year-on-year because of strong demand from investors and central banks. Prices are forecast to remain elevated throughout 2024 and 2025, before easing slightly in 2026.
• Australian gold production decreased by 4.0% year-on-year in the March quarter 2024, caused by lower grades and disruptions from heavy rainfall. Production is forecast to grow over the outlook period as major new projects and expansions come online.
• Gold export earnings are expected to reach a record $33 billion in 2023–24, easing to around $31 billion in 2025–26 as prices gradually decline from record levels in Australian dollar terms.

Latest developments

Export earnings for 2024–25 have been revised up from the March quarter 2024.

Primary aluminium prices are expected to rise through to 2026, with growing demand for new energy-efficient cars and technologies.

• The London Metal Exchange (LME) primary aluminium spot price reached a 2-year high in May 2024, as countries imposed sanctions on Russian aluminium exports. As the market adjusts to the ban and looks at the possibility of rising trade tensions between the US and China, aluminium prices are expected to rise over the outlook period (to end 2026).
• Australia’s primary aluminium output is forecast to be 1.6 million tonnes (Mt) a year in 2024 and onwards. However, Alcoa’s decision to curtail output at its Kwinana alumina refinery in WA by the end of the June quarter 2024 is likely to take Australian alumina output below 19 Mt a year. Mine expansions and new mines are expected to boost Australian bauxite output to 107 Mt by 2025–26.
• Higher aluminium prices and production ramp-ups at existing bauxite operations are likely to boost Australia’s aluminium, alumina and bauxite exports to $18 billion by 2025–26.
   

Latest developments

Export volumes are forecast to reach 905,000 tonnes in 2024–25, representing a 14.5% increase from 2023–24.

Higher copper prices are expected to improve export earnings in 2024-25 to reach around $15.8 billion.

In 2025–26, further growth in export volumes and stronger prices are expected to contribute to export earnings of around $17.0 billion.

• Copper prices have continued to trend higher in recent months, averaging about US$9,700 a tonne in the June quarter — up 14% since the start of the year. The surge in prices reflects strong growth in global demand, which is expected to largely persist over H2 2024. LME copper prices are forecast to average about US$9,500 a tonne in 2024 (up from US$8,700 a tonne in 2023), rising to US$9,970 in 2026.
• Global copper consumption is forecast to grow by about 2.1% in 2024. China and the US will account for the bulk of this growth, driven by rising manufacturing activity and large investment in energy infrastructure.
• Australian copper export earnings are forecast to reach around $15.8 billion in 2024–25. Higher production growth and export volumes, combined with continued strength in prices will see export earnings reach $17.0 billion in 2025–26.

Latest developments

Australia’s nickel export earnings continue to be impacted by falling nickel prices and forced closures and cuts by Australian producers.

• Nickel prices rebounded strongly in the June quarter, with the average price in the month of May (US$19,500 a tonne) up 25% from February lows. However, the continued magnitude of new supply growth presents an ongoing risk of further price falls ¬over the outlook period.
• Despite slowing activity in the global economy in the last 12 months, world demand for nickel remained robust in the March quarter 2024, driven by China and Indonesia.
• The outlook for Australian nickel exports remains broadly consistent with the March 2024 REQ, with weaker prices and reduced production expected to see Australian nickel export earnings fall around 35% to $2.3 billion in 2024–25 and further decline to $1.5 billion in 2025–26.
   

Latest developments

Export earnings for 2024-25 and 2025-26 have been revised up because of a stronger zinc price forecast.

Higher zinc prices should take pressure off mine margins, easing pressure for further price induced mine closures.

• Zinc demand has strengthened in recent months with improvements in the outlook for global industrial production. After large falls in 2023, the zinc price is forecast to rise modestly over the outlook period, from about US$2,700 a tonne in 2024 to about US$2,800 a tonne by 2026.
• Australia’s zinc production is expected to ease over the outlook as production tapers off in some of Australia’s older zinc mines.
• Australia’s zinc exports are forecast to increase from $3.9 billion in 2023–24 to $4.2 billion in 2024–25 before easing to $4.0 billion in 2025–26.