Mineral exports down, but real earnings up

THE Australian Bureau of Agricultural and Resource Economics has knocked $A22 billion from its estimate of how much money commodity exports will earn the Australian economy in 2008-09, but coal producers are expected to remain buoyed by the low Aussie dollar.
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Staff Reporter

ABARE said yesterday it expected Australian commodity exports to come to $192 million for 2008-09, down from its $214 billion forecast made only three months ago.

After crunching the numbers, the research group found much of the decline would come from the mineral and energy export sectors, now expected to be worth $159 billion in export earnings, down from $180 billion forecast in September.

However, this still represents a rise of 37% in earnings on the previous financial year, good news especially for coal and iron ore miners who will reap the continued benefits of higher prices.

On an individual commodity level, ABARE said in thermal coal Australia’s exports would increase this financial year by 7% over 2007-08 figures as capacity constraints in infrastructure ease over coming weeks.

Thermal coal contracts are expected to roughly halve after the end of this calendar year, but exports for 2008-09 are expected to increase by 117% to $18.1 billion as price falls in 2009 are cushioned by the weaker Australian dollar.

ABARE analyst Kate Penney said she expected thermal coal prices to be supported by continuing factors of expansions to coal-fired electricity generation capacity, especially in Asia, infrastructure constraints in key exporting regions and the commodity’s relatively low price compared to other energy fuels.

In steelmaking raw materials such as iron ore and metallurgical coal, the picture was less rosy as the global financial crisis is expected to cause a major contraction in steel demand.

ABARE analyst Rohan Kendall said a substantial fall in metallurgical coal prices for the Japanese financial year of 2009 was likely – a view echoed by many other analysts, including those from Macquarie Research and the ANZ.

“Contributing to the expected decline in metallurgical coal prices will be weaker demand because of steel production cutbacks, increased availability of metallurgical coal from Australia, following the Queensland floods in early 2008, and the appreciation of the US dollar against many international currencies including the Australian dollar and the Japanese yen,” he said.

“There have been no reports of defaults on metallurgical coal contracts. However, with substantial steel production cuts underway, there have been reports of steel mills requesting metallurgical coal shipments be delayed.”

ABARE said for the 2009 calendar year world steel production was set to grow by 1%, compared to 7% growth in 2007.

However, the news is not all grim and ABARE said for 2008-09, met coal and iron ore earnings would lift, with iron ore earnings expected to be 52% higher year on year to $31 billion, and met coal would increase by 150% to around $40 billion.

For all metals and other minerals, export earnings are forecast to be $78.3 billion, an increase of 11% over the 2007-08 financial year’s earnings.