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Resources and Energy Quarterly June 2017 2
Further Information
For more information on data or government initiatives please access
the report from the Department’s website at:
www.industry.gov.au/oce
Editor
David Thurtell
Chapter Authors
Resources and energy overview: Marco Hatt
Macroeconomic outlook: Kristy Krautler
Steel and iron ore: Monica Philalay
Metallurgical and thermal coal: Gayathiri Bragatheswaran
Gas: Nikolai Drahos
Oil: Kate Martin
Uranium and zinc: Mark Gibbons
Gold and copper: Joseph Moloney
Aluminium, alumina, bauxite: Thuong Nguyen
Aluminium box: Thuong Nguyen and David Thurtell
Nickel: Marco Hatt
Special Feature (Battery Component Commodities): Mark Gibbons
Acknowledgements
The authors would like to acknowledge the contributions of:
David Thurtell
Mark Cully
Tim Bradley
David Whitelaw
Laura Ling
Katya Golobokova
Ken Colbert
Cover image source: Glencore.
Contents image source: BHP
© Commonwealth of Australia 2017
ISSN 1839-5007 [ONLINE]
Vol. 6, no. 4
This work is copyright. Apart from any use as permitted under the
Copyright Act 1968, no part may be reproduced or altered by any
process without prior written permission from the Australian
Government. Requests and inquiries concerning reproduction and rights
should be addressed to:
Department of Industry, Innovation and Science, GPO Box 9839,
Canberra ACT 2601 or by emailing [email protected]
Creative Commons licence
With the exception of the Coat of Arms, this publication is licensed under
a Creative Commons Attribution 3.0 Australia Licence.
Creative Commons Attribution 3.0 Australia Licence is a standard form
license agreement that allows you to copy, distribute, transmit and adapt
this publication provided that you attribute the work.
A summary of the licence terms is available from:
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The Commonwealth’s preference is that you attribute this publication
(and any material sourced from it) using the following wording:
Source: Licensed from the Commonwealth of Australia under a Creative
Commons Attribution 3.0 Australia Licence.
ContentsForeword 4
About this edition 5
Resource and energy overview 6
Macroeconomic outlook 17
Steel 22
Iron ore 28
Metallurgical coal 35
Thermal coal 43
Gas 50
Oil 58
Uranium 66
Gold 73
Aluminium, alumina and bauxite 79
Copper 91
Nickel 97
Zinc 103
Batteries 108
Trade summary charts and tables 115
Appendix 124
Resources and Energy Quarterly June 2017 4
ForewordAustralia’s resources and energy export earnings grew rapidly in 2016–
17, up by 25 per cent to $205 billion, based on preliminary estimates.
However, resource and energy export earnings are forecast to decline
marginally in 2017–18 and 2018–19. Declining prices are expected to
more than offset the impact of rising export volumes.
The rise in export values in 2016–17 was largely due to an unexpected
spike in metallurgical coal and iron ore prices. These steel-making
commodities account for over half of Australia’s resources and energy
exports by value.
Steel mills in China — the largest consumer of Australia’s iron ore and
one of the largest for metallurgical coal — continued to increase output
and helped drive steel making commodity prices higher in 2016–17.
Metallurgical coal prices were also propelled higher by the now partially-
reversed restrictions placed on coal mining operations in China and
several temporary disruptions to supply.
Export volumes for the major base metals declined sharply in 2016–17,
reflecting a combination of mine and refinery closures, as well as once-
off supply disruptions. The drop in base metals production is forecast to
turn around modestly in the next two years. This reflects a small number
of new mines and the impact of the ramping up of other existing mining
operations.
Over the next two years, LNG is forecast to add $14 billion to Australia’s
resources and energy exports, while declining coal and iron ore prices
are expected to detract $11 billion and $9.8 billion from export earnings,
respectively.
Moderating global demand growth, in addition to growing low-cost
supply, is putting downward pressure on resource and energy
commodity prices, particularly for iron ore but also for metallurgical coal.
Iron ore prices have already declined noticeably, while metallurgical coal
prices — held up in the June quarter by supply disruptions attributed to
Cyclone Debbie — are also falling back.
The volume of Australia’s resources and energy exports is forecast to
continue to grow robustly in the next two years. LNG is forecast to be the
largest contributor to export volumes growth, with several major projects
still yet to be completed or to reach full capacity. Export volumes for
metallurgical coal are also expected to grow strongly in 2017–18, as
stockpiles built up in the wake of Cyclone Debbie are wound down.
However, investment in Australia’s mining sector has declined rapidly in
recent years — and is expected to continue to do so. This is already
evidenced in the sharp decline in exploration expenditure, and has
contributed to a reduction in employment in the mining industry as a
whole. Growth in export volumes 2017–18 and 2018–19 are forecast to
be weighed down by falling investment, although the impact of lower
investment in the industry will be more apparent beyond the two year
outlook horizon.
This edition of the Resources and Energy Quarterly contains a special
feature on battery component commodities. Global battery markets have
entered a period of rapid growth in recent years, and the Australian
mining industry may be well positioned to capitalise on this growth.
Australia has the fourth highest reserves in the world of lithium and the
fourth highest of cobalt — both of which are battery component
commodities. However, it is not clear yet how far Australia can progress
beyond mining and into other parts of the battery supply chain, which are
dominated by China. Despite this, the undeveloped state of the supply
chain may result in opportunities emerging that are not yet apparent.
Mark Cully
Chief Economist
Department of Industry, Innovation and Science
Resources and Energy Quarterly June 2017 5
Publication Expected release date Outlook period Special focus
June quarter 2017 7 July 2017Australian data: 2018–19
International data: 2019Battery component commodities
September quarter 2017 6 October 2017Australian data: 2018–19
International data: 2019Developments in key international markets
December quarter 2017 22 December 2017Australian data: 2018–19
International data: 2019Resources and Energy Major Projects
March quarter 2018 April 2018Australian data: 2022–23
International data: 2022Medium term (five year) outlook
Table 1.1: Resources and Energy Quarterly publication schedule
About this editionEach June, September and December quarter edition of the Resources
and Energy Quarterly will update the Office of the Chief Economist’s
‘short term’ (two year) outlook for production and exports of Australia’s
major resource and energy commodities.
This edition includes a special topic: battery component commodities.
In this report, commodities are grouped into two broad categories,
referred to as ‘resources’ and ‘energy’. ‘Energy’ commodities comprise
metallurgical and thermal coal, oil, gas and uranium. ‘Resource’
commodities in this report are all other mineral commodities.
Unless otherwise stated, all Australian dollar figures in this report are in
2016–17 dollar terms. All US dollar figures are in 2017 dollar terms.
Resources and Energy Quarterly June 2017 7
Figure 1.1: Revisions to export earnings
Source: ABS (2017) International Trade in Goods and Services, 5368.0; Department of
Industry, Innovation and Science (2017)
Source: ABS (2017) International Trade in Goods and Services, 5368.0;Department of
Industry, Innovation and Science (2017)
Revisions to the outlook
Since the March 2017 Resources and Energy Quarterly, the value of
Australia’s resources and energy export earnings in 2016–17 has been
revised down by $9.9 billion (4.6 per cent) to $205 billion. The downward
revision primarily reflects an earlier than expected decline in iron ore
prices since the March 2017 Resources and Energy Quarterly. Export
earnings for iron ore have been revised down by $7.2 billion to $65
billion. Export earnings have also been revised down for LNG — by $1.0
billion — largely due to unplanned outages at LNG plants.
A downward revision to the iron ore price is also the primary reason for
the downward revision in resource and energy export earnings in 2017–
18 and 2018–19. An anticipated delay to the start-up of the Ichthys
project (which will produce LNG and condensate), and downward
revisions to the oil price outlook (which affects the LNG price outlook)
also contributed to the downward revisions in total resources and energy
export earnings.
Downward revisions to the metallurgical coal and copper price outlooks
also contributed to the revisions to export earning in 2017–18 and 2018–
19.
Overall, resource and energy export earnings in 2017–18 have been
revised down by $13 billion to $202 billion, while export earnings in
2018–19 have been revised down by $8.3 billion to $200 billion.
100
125
150
175
200
225
250
2006–07 2009–10 2012–13 2015–16 2018–19 2021–22
2016–17 A
$ b
illion
Actual Dec–16 forecast
Mar–17 forecast Jun–17 forecast
-8 -6 -4 -2 0
Iron ore
LNG
Metallurgical coal
Copper
Oil
2016–17 A$ billion
2016–17 2017–18 2018–19
Figure 1.2: Largest revisions to export earnings, March 2017 to
June 2017
Resources and Energy Quarterly June 2017 8
Figure 1.3: Resource and energy export prices, real terms
Notes: Export prices are export unit values (EUVs, export values divided by export
volumes); the price index is a Fisher Price Index, which weights each commodity’s EUV
by its share of total export values; the Australian dollar index is based to June quarter
2017 = 100; US dollar commodity prices are converted at the market exchange rate
Source: ABS (2017) International Trade in Goods and Services, 5368.0; Department of
Industry, Innovation and Science (2017)
Source: ABS (2017) International Trade in Goods and Services, 5368.0; Department of
Industry, Innovation and Science (2017)
Market summary: Commodity prices and world demand
Commodity prices declined for the first time in a year in the June quarter
The Office of the Chief Economist’s resource and energy commodity
price index — the weighted-average price Australian resource and
energy exporters receive for their commodities — is estimated to have
declined by 3.0 per cent in nominal terms in the June quarter 2017,
following four consecutive quarters of growth. A depreciation in the
Australian dollar cushioned the impact of the fall in USD commodity
prices: in US dollar terms, Australia’s resources and energy export
prices are estimated to have dropped by 6.7 per cent.
The slide in resource and energy commodity prices was largely driven
by a 13 per cent decline in iron ore export prices (export unit values).
Iron ore prices are forecast to decline further over the next two years, as
supply grows and global demand is little changed.
Partially offsetting the decline in iron ore prices in the June quarter was a
15 per cent increase in LNG export prices. Higher prices for LNG are
linked to the lagged effect of higher oil prices in the early months of
2017.
Cyclone Debbie — which hit northern Queensland in late March and
caused export delays in the world’s largest metallurgical coal producing
region — contributed to the metallurgical coal spot price increasing by
24 per cent in the June quarter 2017. However, with the spot price
considerably lower than the previous contract price, export prices are
estimated to have only increased by 4.0 per cent overall. Delays to the
June quarter contract price negotiations resulted in exporters moving
entirely to spot or index-linked pricing in that period.
Thermal coal export prices are estimated to have grown by 4.9 per cent
in the June quarter 2017. This reflects the renegotiation of the
benchmark contract price, which settled at US$84 a tonne for April 2017
to March 2018, a 36 per cent increase. Weighing down on overall
thermal coal export prices was the benchmark Newcastle spot price,
which declined by 5.0 per cent in the June quarter.
Other major price movers in the June quarter were zinc (up 9.3 per cent)
and copper (up 5.5 per cent). Alumina prices declined by 20 per cent,
while nickel prices declined by 13 per cent.
0
50
100
150
200
Jun–04 Jun–07 Jun–10 Jun–13 Jun–16 Jun–19
Index
Australian dollars US dollars
-30 -20 -10 0 10 20
Iron ore
Alumina
Metallurgical coal
Nickel
Aluminium
Gold
Zinc
Copper
Thermal coal
LNG
Per cent
Figure 1.4: Growth in Australia’s nominal export prices in the June
quarter 2017 (ranked in order of contribution to total)
Resources and Energy Quarterly June 2017 9
Notes: The price index is a Fisher Price Index based on Australia’s export volumes and
values. The values are in Australian dollars.
Source: ABS (2017) International Trade in Goods and Services, 5368.0; Department of
Industry, Innovation and Science (2017)
Notes: Steel-making includes iron ore and metallurgical coal. Energy excludes
metallurgical coal. Consumption volumes for each commodity are weighted by their share
of Australia’s resources and energy export values for that year.
Sources: Bloomberg (2017) World Steel Association; IEA (2017) Coal Information 2016;
Nexant World Gas Model (2017); International Energy Agency Monthly Oil Data Service
(2017); World Nuclear Association (2017); Thompson Reuters (2017); World Bureau of
Metal Statistics (2017); International Nickel Study Group (2017); International Lead Zinc
Study Group (2017); Department of Industry, Innovation and Science (2017)
In 2016–17, Australian exporters received the highest prices for their
commodities since 2013–14
Resources and energy export prices are estimated to have grown by 23
per cent in real terms in 2016–17, to reach their highest level since
2013–14 — although they remained 34 per cent lower than their 2008–
09 high.
Nonetheless, Australia’s resources and energy export prices are
forecast to decline by 6.1 per cent in 2017–18, and by a further 7.4 per
cent in 2018–19. These declines primarily reflect declining metallurgical
coal prices — driven by a forecast decline in China’s metallurgical coal
imports. Also expected to put downward pressure on Australia’s overall
resources and energy export prices is iron ore and, to a lesser extent,
thermal coal. Partially offsetting declines in iron ore and coal prices are
forecast increases in LNG, crude oil and condensate and gold prices.
Growth in global consumption of Australia’s resource and energy
commodities is forecast to slow over the next two years
Global consumption of resource and energy commodities is forecast to
grow in 2017, 2018 and 2019 — albeit more slowly than in 2016, and
considerably more slowly than most of the last decade. Slower global
demand growth is expected to contribute to declining commodity prices.
In particular, growth in consumption of steel-making commodities iron
ore and metallurgical coal — which together represent over half of
Australia’s resources and energy exports — is forecast to slow
significantly. This is attributed to slight declines in steel production in
China, the world’s largest steel producer, following a decade of rapid
growth.
Similarly, a slowdown in infrastructure investment and construction
activity in China is expected to be reflected in slowing growth in global
consumption of base metals.
Global consumption of energy (excluding metallurgical coal)
commodities is also forecast to slow, but not to the same extent as steel-
making commodities. For Australia, the most important source of growth
in global energy commodity demand will be from gas, which is forecast
to grow at an average annual rate of 1.6 per cent between 2016 and
2019. By contrast, global consumption of thermal coal is forecast to grow
by 0.7 per cent a year.
0
20
40
60
80
100
120
140
160
1998–99 2002–03 2006–07 2010–11 2014–15 2018–19
Index,
2016
–17 =
100
Figure 1.5: Australia’s resources and energy export prices, real terms
-4
-2
0
2
4
6
8
10
12
1999 2003 2007 2011 2015 2019
Annual per
cent change
Steel-making Energy Base metals Gold Total
Figure 1.6: Global usage of resource and energy commodities
Resources and Energy Quarterly June 2017 10
Source: ABS (2017) International Trade in Goods and Services, 5368.0;Department of
Industry, Innovation and Science (2017)
Source: ABS (2017) International Trade in Goods and Services, 5368.0;Department of
Industry, Innovation and Science (2017)
Australia overview
Australia’s resource and energy export values grew rapidly in the first
half of 2017, driven by a temporary surge in prices
Australia’s resources and energy export values grew by 44 per cent
year-on-year (in real terms) in the March quarter 2017 — the strongest
growth in over six years — and are estimated to have increased by 34
per cent year-on-year in the June quarter. For 2016–17 as a whole,
resource and energy export values are estimated to have grown by 25
per cent.
Growth in export values in 2016–17 was largely propelled by increased
prices — particularly for metallurgical coal and iron ore (despite recent
price declines), but also for thermal coal and LNG. The rapid price
growth was likely temporary — driven by a surge in activity in China’s
construction sector, as well as once-off weather and infrastructure-
related supply disruptions. As a result, prices for iron ore and coal are
forecast to decline in the next two years, while LNG prices — which are
linked to oil prices by formula under contractual arrangement — are
forecast to be remain close to current levels.
To a lesser extent, growth in export values was supported by growth in
export volumes in 2016–17. The resources and energy export volumes
index — which weights export volumes for each commodity by their
value — is estimated to have grown by 3.9 per cent in 2016–17. This
was the slowest growth in export volumes in six years.
Declining investment in the mining industry (particularly outside of oil
and gas) is weighing on export volumes growth. The slowdown in export
volumes growth reflects slower growth in iron ore and coal export
volumes than in previous years, as well as declines in export volumes of
metallurgical coal, zinc, nickel, aluminium, copper and oil.
Weather-related supply disruptions had a measurable effect on
Australia’s metallurgical coal exports in 2016–17
Several weather events affected Australian resource and energy exports
in 2016–17. In Queensland, a combination of weather-induced
production and infrastructure problems, industrial action and geological
instability in some mines, hampered metallurgical coal production in the
September quarter 2016.
Figure 1.7: Australia’s resources and energy export values and
volumes
0
50
100
150
200
250
0
25
50
75
100
125
2002–03 2006–07 2010–11 2014–15 2018–19
2016–17 A
$ b
illion
Index,
2016–17 =
100
Volumes Values
-10 0 10 20 30
2018–19
2017–18
2016–17
Per cent
Prices contribution Volumes contribution
Figure 1.8: Annual growth in Australia’s resources and energy
export values, contributions from prices and volumes
Resources and Energy Quarterly June 2017 11
Figure 1.9: Export volumes growth by commodity grouping
Notes: The base metal group comprises aluminium, copper, nickel and zinc
Source: ABS (2017) International Trade in Goods and Services, 5368.0;Department of
Industry, Innovation and Science (2017)
Metallurgical coal exports were again affected in the June quarter 2017
by rail damage in the aftermath of Cyclone Debbie. Producers stockpiled
output while they waited for railway and port infrastructure to be
repaired, suggesting a pickup in exports is likely in 2017–18. The two
weather events contributed to metallurgical coal export volumes for
2016–17 being revised down from a 1.2 per cent increase (as of the
June 2016 Resources and Energy Quarterly) to a 2.9 per cent decrease.
In Western Australia, a particularly severe monsoon season had a small
impact on iron ore and LNG shipments. The effect of the monsoon was
small enough such that company guidance for iron ore shipments for
2016–17 was not altered. Woodside reported that its Western Australian
LNG and condensate production was lower than expected because of
the monsoon.
Heavy rainfall in South Australia in the March quarter 2017 impacted on
copper production, contributing to a 13 per cent decline in output.
Export volumes across most base metals, metallurgical coal, oil and
uranium, are estimated to have declined in 2016–17
With relatively little new investment in Australian resource and energy
mining and refining in recent years — a notable exception being LNG —
export volumes growth has slowed considerably. In some cases,
temporary supply disruptions and mine or refinery closures has
contributed to lower export volumes.
Export volumes for the major base metals are estimated to have
declined sharply in 2016–17, including zinc (down 32 per cent), nickel
(down 27 per cent) and copper (down 11 per cent), reflecting a
combination of mine and refinery closures, as well as temporary supply
disruptions. Oil (down 4.7 per cent) and uranium (down 2.1 per cent)
also declined, reflecting temporary supply disruptions.
Several nickel, zinc and aluminium operations closed in 2016–17 — with
producers reacting to lower global prices. Aluminium production was
also adversely affected by a power outage at Portland Aluminium
smelter. The decline in copper export volumes largely reflects life-of-
mine closures.
The drop in base metals production is forecast to turn around, modestly,
in 2017–18 and 2018–19. This reflects a small number of new mines
starting production, and other new mining operations increasing output.
Export volumes growth to accelerate in 2017–18, but soften in 2018–19
In 2017–18 and 2018–19, Australia’s resources and energy export
volumes are forecast to grow by 7.0 per cent and 4.8 per cent,
respectively. The pickup in 2017–18 partly reflects a return to growth in
base metals exports. LNG exports will remain the main driver of growth
in export volumes in the next two years, but the pace of growth in LNG
exports is expected to slow sharply in both years. This reflects export
volumes levelling off, as LNG operations finish their ramp up to full
capacity following a period of heavy investment in the sector.
-20
-10
0
10
20
30
40
50
LNG Gold Iron ore Thermalcoal
Cokingcoal
Basemetals
Per
cent
2015–16 2016–17 2017–18 2018–19
Resources and Energy Quarterly June 2017 12
Note: Mining industry value-added is in seasonally adjusted chain volume measures
Source: ABS (2017) National Accounts, 5204.0; ABS (2017) International Trade in Goods
and Services, 5368.0; Department of Industry, Innovation and Science (2017)
Note: Chart data is in seasonally adjusted chain volume measures
Source: ABS (2017) National Accounts, 5204.0; ABS (2017) International Trade in Goods
and Services, 5368.0
The mining industry continued to support overall Australian economic
growth in the March quarter 2017
Australia’s real Gross Domestic Product (GDP) grew by 0.3 per cent in
the March quarter 2017, with mining industry value-added growing by
0.5 per cent. The mining industry directly accounted for 14 per cent of
the growth in Australia’s GDP in the quarter. Growth in mining industry
value-added was primarily driven by oil and gas extraction, which grew
by 3.1 per cent. Coal mining industry valued-added also grew in the
March quarter (up 1.6 per cent), while iron ore mining value-added
declined by 1.5 per cent.
Oil and gas extraction has been the largest contributor to growth in
mining industry value-added in the last two years, propelled by rapid
growth in LNG exports. Growth in industry value-added for Australia’s
largest commodity exports — iron ore and coal — has been dampened
by falling capital expenditure and slowing export volumes growth.
Resources and energy exports have a significant impact on mining
industry value-added, as demonstrated in Figure 1.10. Over the next two
years, accelerated growth in resources and energy export volumes
(primarily from LNG) is expected to underpin more rapid growth in
mining industry value-added. However, as outlined in the March 2017
Resources and Energy Quarterly, mining’s contribution to the Australian
economy is projected to slow considerably after 2018–19, as the last of
the LNG plants currently under construction are completed, and as the
LNG industry approaches full capacity.
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
Mar–15 Sep–15 Mar–16 Sep–16 Mar–17
$ b
illion
Oil and gas extraction Iron ore mining
Coal mining Other mining
Mining services
Figure 1.11: Cumulative growth in mining industry value-added
since March quarter 2015
-10
-5
0
5
10
15
20
Jun–94 Jun–99 Jun–04 Jun–09 Jun–14 Jun–19
Per
cent
Mining industry value added
Resources and energy export volumes
Figure 1.10: Mining industry value-added and resources and
energy export volumes, year-on-year percentage growth
Resources and Energy Quarterly June 2017 13
Figure 1.12: Mining industry capital expenditure, fiscal year
Notes: Chart data is in nominal terms
Source: ABS (2017) Private New Capital Expenditure and Expected Expenditure, 5625.0
Notes: Other mining includes non-metallic mineral mining and quarrying and exploration
and other mining support services; chart data is in nominal terms
Source: ABS (2016) Private New Capital Expenditure and Expected Expenditure, 5625.0
Mining industry capital expenditure grew slightly in the March quarter
2017, although it is expected to decline in 2017–18
Investment in Australia’s mining industry crept up by 0.4 per cent in the
March quarter 2017, the first increase in nearly three years. The
increase was entirely driven by a rise in investment in building and
structures, while investment in plant and machinery continued to decline.
However, it is likely that mining investment will again decline in the
coming financial year. Mining companies are expecting a 27 per cent
drop in nominal investment in 2017–18. These falls are likely to come
mostly from oil and gas extraction. As can be seen in Figure 1.13,
investment in oil and gas peaked in December quarter 2013 —
considerably higher, and over a year later, than the investment peaks for
metal ore and coal mining.
Equally apparent is the dramatic decline in oil and gas investment since
its peak. Weighing on investment in the oil and gas sector in the coming
two years will be the $US54 Gorgon LNG project, which was completed
in March 2017. While large LNG projects remain — most significantly,
the $US37 Ichthys and the $US34 billion Wheatstone projects — the list
of major projects yet to be completed is forecast to diminish rapidly over
the next two years.
Exploration expenditure is growing, driven by gold
Exploration expenditure grew by 5.1 per cent (seasonally adjusted) in
the March quarter 2017, but was 3.7 per cent lower year-on-year. Within
the total, minerals exploration expenditure grew for the fourth
consecutive quarter, and was 15 per cent higher year-on-year.
The increase in minerals exploration in the past year has been largely
driven by gold exploration. Increased gold exploration has been
incentivised by relatively supportive gold prices and high profit margins.
While the gold price has declined by 22 per cent (in nominal terms)
since its record high in December quarter 2012, it remains 43 per cent
higher than its 21st century-to-date average. The outlook for gold prices
is also generally stable.
Minerals exploration in the March quarter 2017 was also helped by
growth in “other minerals” exploration, and by nickel and cobalt
exploration. Coal exploration edged up by 2.1 per cent year-on-year,
while iron ore exploration declined by 7.3 per cent year-on-year.
0
5
10
15
20
Mar-2009 Mar-2011 Mar-2013 Mar-2015 Mar-2017$ b
illion
Oil and gas extraction Metal ore mining
Coal mining Other mining
Figure 1.13: Mining industry capital expenditure by commodity,
quarterly
0
10
20
30
40
50
60
70
80
90
100
2007–08 2009–10 2011–12 2013–14 2015–16 2017–18
$ b
illion
Actual Expected
Resources and Energy Quarterly June 2017 14
Figure 1.15: Australia’s mining industry employment
Notes: Data is a three quarter centred moving average of original data; non-metallic
minerals includes quarrying; services is ‘other mining support services’
Source: ABS (2017) Labour Force Australia, 6291.0.55.003
Note: Data is seasonally adjusted
Source: ABS (2017) Actual and Expected Private Mineral Exploration, 8412.0
Notes: Trend data
Source: ABS (2017) Labour Force Australia, 6291.0.55.003
Mining employment edged up in the June quarter 2017, for the fourth
consecutive quarter
The mining sector employed 235,800 people in the June quarter 2017,
up by 0.4 per cent quarter-on-quarter and by 6.0 per cent year-on-year.
Mining industry employment has been growing since the September
quarter 2016.
The modest improvement in mining industry employment in recent
quarters was supported by the recent jump in minerals (particularly gold)
exploration activity. This is evidenced by Figure 1.16, which shows that
the growth in mining industry employment is limited to exploration and
mining support services and, to a lesser extent, metal ore mining. By
contrast, employment in other mining sub-industries have been relatively
steady or in decline.
0
200
400
600
800
1,000
1,200
1,400
1,600
Mar–97 Mar–01 Mar–05 Mar–09 Mar–13 Mar–17
A$ m
illio
n
Minerals Petroleum
Figure 1.14: Australia’s exploration expenditure, quarterly
0
20
40
60
80
100
120
Jun–97 Jun–02 Jun–07 Jun–12 Jun–17
Thousand p
ers
ons
Coal Oil and gas
Metal ore Non-metallic minerals
Exploration and services
0
50
100
150
200
250
300
Jun–97 Jun–02 Jun–07 Jun–12 Jun–17
Thousand p
ers
ons
Figure 1.16: Australia’s mining industry employment,
by sub-industry
Resources and Energy Quarterly June 2017 15
Notes: f Forecast growth on previous year ; EUV is export unit value, which is export
values divided by export volumes; values are in 2016–17 dollars
Source: ABS (2017) International Trade in Goods and Services, 5368.0; Department of
Industry, Innovation and Science (2017)
A$2.0b
A$2.1b
A$2.7b
A$3.2b
A$8.1b
A$5.8b
AS7.8b
A$17.4b
A$17.0b
A$37.0b
A$26.5b
A$54.7b
A$2.1b
A$2.1b
A$2.4b
A$3.5b
A$6.0b
A$5.9b
A$7.9b
A$16.5b
A$19.1b
A$31.3b
A$31.5b
A$58.2b
A$1.9b
A$2.1b
A$2.5b
A$3.2b
A$5.6b
A$6.3b
A$7.4b
A$17.5b
A$19.1b
A$22.7b
A$35.7b
A$64.5b
0 15 30 45 60 75
Lead
Nickel
Zinc
Aluminium
Crude oil
Alumina
Copper
Gold
Thermal coal
LNG
Metallurgical coal
Iron ore
2016–17 2017–18 f 2018–19 f
2017–18 fPer cent
change2018–19 f
volume EUV value volume EUV value
p q q p q q
6 15 -10 2 -8 -6
p q q q q q
10 -20 -12 -2 -14 -16
p p p p p p
24 12 38 16 2 18
q q q q
-1 0 0 -1 -10 -11
q q q p p p
-2 -3 -6 4 1 5
p p p q q
2 4 6 0 -1 -1
p q q p q q
1 -6 -6 1 -2 -2
p p p p p
0 7 7 28 6 35
p p p q q q
4 6 10 -1 -9 -10
q q q p q p
-2 -2 -4 16 -6 9
p q p
10 -9 1 0 0 0
p q p p q q
12 -1 11 4 -7 -3
Figure 1.17: Australia’s major resources and energy commodity
exports, 2016–17 dollars
Resources and Energy Quarterly June 2017 16
Annual percentage change
Unit 2015–16 2016–17 s 2017–18 f 2018–19 f 2016–17 s 2017–18 f 2018–19 f
Resources and energy A$m 160,741 205,230 206,776 209,061 27.7 0.8 1.1
– real b A$m 163,554 205,230 202,424 200,255 25.5 -1.4 -1.1
Energy A$m 59,813 86,664 93,077 96,198 44.9 7.4 3.4
– real b A$m 60,860 86,664 91,118 92,146 42.4 5.1 1.1
Resources A$m 100,928 118,566 113,699 112,863 17.5 -4.1 -0.7
– real b A$m 102,694 118,566 111,305 108,109 15.5 -6.1 -2.9
Notes: s estimate f forecast; CAGR is compound annual growth rate in percentage terms from 2016–17 to 2018–19
Source: ABS (2017) International Trade in Goods and Services, 5368.0; Department of Industry, Innovation and Science (2017)
Table 1.2: Outlook for Australia’s resources and energy exports
Volume Value (2016–17 A$)
Unit 2016–17 s 2018–19 f CAGR Unit 2016–17 s 2018–19 f CAGR
Alumina kt 17,938 18,265 0.9 A$m 6,286 5,846 –3.6
Aluminium kt 1,353 1,395 1.6 A$m 3,202 3,174 –0.4
Copper kt 909 948 2.1 A$m 7,439 7,804 2.4
Gold t 326 334 1.1 A$m 17,467 17,366 –0.3
Iron ore Mt 825 893 4.0 A$m 64,502 54,732 –7.9
Nickel kt 183 201 4.9 A$m 2,052 2,064 0.3
Zinc kt 1,026 1,169 6.7 A$m 2,521 2,652 2.6
LNG Mt 51 74 19.7 A$m 22,693 37,046 27.8
Metallurgical coal Mt 182 197 3.8 A$m 35,673 26,487 –13.8
Thermal coal Mt 202 199 –0.8 A$m 19,150 17,011 –5.7
Oil kbd 228 292 13.2 A$m 5,601 8,147 20.6
Uranium t 7,724 8,450 4.6 A$m 947 1,003 2.9
Table 1.3: Australia’s resources and energy commodity exports, selected commodities
Notes: b In 2016–17 Australian dollars; s estimate; f forecast
Source: ABS (2017) International Trade in Goods and Services, 5368.0; Department of Industry, Innovation and Science (2017)
Resources and Energy Quarterly June 2017 18
Figure 2.1: Industrial production growth vs world PMI, YoY growth
Source: Netherland CPB (2017) World Trade Monitor April; Markit (2017) JP Morgan
Global Manufacturing PMI
Global outlook
The March 2017 Resources and Energy Quarterly noted early signs of a
broadening pick up in the global economy. Conditions in the June
quarter 2017 reflected a continuation of this recovery, with the growth
outlook for several countries being upgraded. Global growth is forecast
to reach 3.5 per cent in 2017, and 3.6 per cent in 2018, up from 3.1 per
cent in 2016.
Improvements in the global outlook have been primarily driven by
ongoing relatively loose monetary conditions, low energy prices, and a
steady recovery in business confidence. Surveys monitoring the global
manufacturing sector such as the world Purchasing Manager’s Index
(PMI) appear to have topped out but remain strong. The performance of
the Eurozone — Germany in particular — improved, with manufacturing
conditions at a six-year high.
Despite positive outlooks for short term growth, there remain several
risks to global growth in the medium/long term. Low productivity growth
continues to plague many advanced economies, creating a drag on
wage growth and weak demand.
There are other risks to the medium-term outlook. A faster-than-
expected pace of US interest rate rises could result in a strong
appreciation of the US dollar, which would have significant flow-on
effects for many countries’ debt repayments. Any significant US fiscal
stimulus would potentially add to demand; given that the US economy is
already close to full employment, this would add to inflationary
pressures, putting pressure on the US Federal Reserve to raise rates.
The 19th National Congress of Communist Party of China in November
will be important for the medium term direction of the Chinese economy.
A delicate balance needs to be set between economic growth and
financial stability, and also ensuring that high growth does not come at
the expense of necessary structural reforms.
China
Indicators of China’s “old economy” of export and investment-led growth
showed some weakness in recent months. This suggests a gradual
slowing of the economy, as the transition towards consumption-led
growth continues. Despite the recent weakness, growth in industrial
production remains above the trend of the past two years. Manufacturing
conditions also indicate expansionary conditions in the sector.
Growth in house prices has eased from the rapid rate seen in late 2016.
However, investment in real estate is firm, with a year-on-year rise of 8.8
per cent in May. Slower price growth has not impacted construction
activity, with new residential construction starts rising by 8.4 per cent in
May. This is likely fuelled by new developments being undertaken to
reduce undersupply in major cities.
In the short term, Chinese real GDP growth is expected to ease
modestly, to 6.6 per cent in 2017 and 6.2 per cent in 2018. Growing
concerns over China’s reliance on debt-financed investment represent
the main risk to the medium term outlook. In a recent statement to the
IMF Monetary and Financial Committee, the Governor of the People’s
Bank of China reiterated that China will undertake “prudent and neutral”
monetary policy. Large injections of support will be avoided, and more
efforts will be made to deleverage the economy to reduce the ratio of
debt to GDP.
-21
-14
-7
0
7
14
21
30
36
42
48
54
60
66
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Per
cent
Index p
oin
ts
World PMI World IP growth (lagged 2 months, rhs)
Resources and Energy Quarterly June 2017 19
0
5
10
15
20
25
30
35
2012 2013 2014 2015 2016 2017
Per
cent
Real estate Manufacturing Fixed asset investment
Figure 2.2: Breakdown of Chinese investment, YoY growth
Figure 2.3: US unemployment rate vs initial jobless claims
Source: National Bureau of Statistics, China (2017)
Source: Bureau of Labour Statistics, United States (2017) Unemployment rate; United
States Department of Labour (2017) Initial jobless claims
In Beijing, banks are taking more time to assess mortgage applications,
and in some cases are ceasing to grant mortgage loans altogether. The
central bank is also continuing to increase interbank interest rates, in an
effort to temper asset price rises.
Although the future outlook for China remains relatively positive, an
absence of additional stimulus could see growth slowing in the second
half of 2017. Given that China is the world’s largest consumer of raw
materials, this suggests lower growth in global demand for commodities,
particularly industrial metals. In May, China hosted a summit to promote
their One Belt One Road Initiative — an infrastructure program aimed to
link China with a broad range of countries across continents to
encourage better trade links. Although Australia is not part of the
initiative, the push for infrastructure development across countries could
increase demand for Australia commodities.
United States
US real GDP growth was weak in the March quarter (1.4 per cent
annualised rate), however, growth was constrained by temporary factors
including unseasonably warm weather — which limited spending on
utilities. Strong consumption growth and falling unemployment continue
to drive a positive near term outlook. A strong growth outlook for the US
will help improve the outlook for the global economy. Business
confidence has also picked up, amidst expectations of increased
government spending in the future. The unemployment rate is also
falling, and initial jobless claims data point to further falls in the
unemployment rate in the short term.
Further expectations of an improvement in the US economy are
reflected in US bond yields. Yields have risen significantly since the
November 2016 election, suggesting the market is expecting inflation to
pick up. Following the rise in the Federal Funds Rate in June, another
rate rise is likely in late 2017, with three more expected during 2018.
US economic growth is expected to be 2.1 per cent in 2017 and 2018.
The Federal Budget, released in May, indicated there would be fiscal
support in the form of tax cuts, but made little mention of the proposed
infrastructure spend which dominated the presidential election
campaign. Tax cuts in the proposed Budget are intended to be funded
by an improvement in growth, which is assumed to jump to 3 per cent.
1
3
5
7
9
11
13
150
240
330
420
510
600
690
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Per
cent
Num
ber
of cla
ims
Initial jobless claims (lhs)
Unemployment rate (lagged 8 months, rhs)
Resources and Energy Quarterly June 2017 20
Figure 2.4: Eurozone PMI vs Eurozone real GDP, YoY growth
Source: Eurostat (2017) Euro Area Gross Domestic Product; Markit (2017) Eurozone
Composite PMI
Source: Ministry of Economy, Trade and Industry, Japan (2017) Indices of Industrial
Production; Japan Machine Tool Builder’s Association (2017) monthly Machine Tool
Orders
Europe
Real GDP growth in the Eurozone in the March quarter was1.9 per cent
(annual rate). Growth was driven by positive results for household
consumption and investment. Conditions in the manufacturing sector are
at six-year highs, while industrial production also grew 1.4 per cent in
April. Energy production was the main contributor to the increase in
production. Exports also showed strong growth, helped by the weaker
Euro.
Political uncertainty following a number of elections earlier in the year
has not affected sentiment in the Eurozone. Improving conditions in the
manufacturing sector have led to an improvement in the outlook. GDP
growth forecasts have been revised up to 2.0 per cent in 2017 and 1.8
per cent in 2018.
The European Central Bank (ECB) is unlikely to reverse its
accommodative monetary policy in the near future. At the May ECB
Board meeting, the President of the ECB reiterated that the bank would
continue its quantitative easing measures until December 2017.
However, after seeing strong growth figures for the March quarter, the
ECB indicated there would be no further interest rate cuts.
Japan
Japan recorded strong growth (of 2.2 per cent) in the March quarter
(seasonally adjusted annualised rate). This result was driven primarily
by rising exports, as increased demand for technology and smartphones
benefited Japanese component makers. Domestic consumption has also
increased, though there has not been a corresponding increase in
wages. Although manufacturing conditions faltered slightly in May,
business sentiment remains solid.
Positive expectations of future growth were also reflected in the Bank of
Japan’s (BoJ) statement following the May BoJ Board meeting. The
economic outlook has now been classified as “turning toward a
moderate expansion”, due to improvements in exports and production.
However, low inflation continues to plague the central bank, with price
growth remaining persistently under the BoJ target of 2 per cent. The
BoJ is expected to continue with quantitative easing measures, to keep
prices from falling and to encourage investment.
-60
-40
-20
0
20
40
60
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017P
er
cent
Industrial production Machine tool orders
Figure 2.5: Japanese industrial production vs Machine tool orders,
YoY growth
-6
-4
-2
0
2
4
6
35
40
45
50
55
60
65
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Per
cent
Index p
oin
ts
Eurozone PMI (lhs) Eurozone GDP (rhs)
Resources and Energy Quarterly June 2017 21
Figure 2.6: South Korea real GDP, YoY growth
Figure 2.7: India real GDP, YoY growth
Source: Bank of Korea (2017)
Notes: Not seasonally adjusted
Source: Central Statistical Organisation, India (2017)
The IMF forecasts growth of 1.2 per cent in 2017, fuelled by continued
growth in net exports. Growth is forecast to fall back to 0.6 per cent in
2018. Low growth is expected to continue into the medium term, as
income growth remains weak and population ageing puts pressure on
the available labour force.
South Korea
South Korea recorded strong real GDP growth of 2.7 per cent in the
March quarter (year-on-year), supported by strong exports and industrial
production. However, in recent months, manufacturing activity has
contracted, due to rising input costs and falls in New Orders. This
weakness has led to a downward revision in the growth outlook; GDP is
now expected to reach 2.7 per cent in 2017 and 2.8 per cent in 2018
(both revised down by 0.3 percentage points).
With the outcome of the recent snap election now settled, there should
be a greater element of political stability in South Korea.
India
Real GDP growth was weaker in the March quarter, dropping to 6.6 per
cent (annual) as the effects of demonetisation of high-value currency
notes lingered. As a result, growth is forecast to be only 7.2 per cent in
2017. Despite this slowing, India will still be the fastest growing economy
in the world, having surpassed China.
Sizeable increases in public sector wages and pensions are supporting
private consumption, while structural reforms — particularly the
introduction of the goods and services tax and measures to improve the
ease of doing business — are projected to help private investment
revive. Growth is expected to recover in 2018, reaching 7.7 per cent.
0
1
2
3
4
5
6
7
8
9
10
2012 2013 2014 2015 2016 2017
Per
cent
-4
-2
0
2
4
6
8
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Per
cent
Resources and Energy Quarterly June 2017 22
Table 2.1 Key world macroeconomic assumptions
Per cent 2016 2017 a 2018 a 2019 a
Economic growth b
Advanced economies 1.7 2.0 2.0 1.9
United States 1.6 2.1 2.1 1.9
Japan 1.0 1.2 0.6 0.8
European Union 28 2.0 2.0 1.8 1.8
Germany 1.8 1.6 1.5 1.4
France 1.2 1.4 1.7 1.7
United Kingdom 1.8 2.0 1.5 1.6
South Korea 2.8 2.7 2.8 3.0
New Zealand 4.0 3.1 2.9 2.6
Emerging economies 4.1 4.5 4.8 4.9
Emerging Asia 6.4 6.4 6.4 6.3
South East Asia d 4.9 5.0 5.2 5.3
China e 6.7 6.6 6.2 6.0
Chinese Taipei 1.4 1.7 1.9 2.0
India 6.8 7.2 7.7 7.8
Latin America -1.0 1.1 2.0 2.5
Middle East 3.8 2.3 3.2 3.2
World c 3.1 3.5 3.6 3.7
Inflation rate b
United States 1.4 2.2 2.4 2.3
Notes: a Assumption; b Change from previous period; c Weighted using purchasing power parity (PPP) valuation of country gross domestic product by IMF d Indonesia, Malaysia, the Philippines,
Thailand and Vietnam; e Excludes Hong Kong
Source: IMF (2017) World Economic Outlook; IMF (2017) Article IV Consultation with the United States of America - Concluding Statement of the IMF Mission; Department of Industry, Innovation
and Science
24
Figure 3.1: World trends in steel production and consumption, compound annual growth rates
Note: Area of bubble represents absolute steel production in 2015 and 2019 (forecast), respectively.
Source: World Steel Association (2017); Department of Industry, Innovation and Science (2017)
Market summary
The momentum of global steel production growth has slowed in recent
months, growing 3.6 per cent year-on-year in April and May compared to
5.2 per cent in the March quarter 2017. Nevertheless, global steel
production growth has remained relatively strong; in contrast, production
contracted by 1.5 per cent year-on-year in the five months to May 2016.
World steel production growth has continued to be supported by a
broadening pick up in the global economy. There has been a steady
improvement to global business confidence and manufacturing sector
indicators.
Annual world steel production growth is forecast to moderate to average
1.3 per cent in 2017, 1.0 per cent in 2018 and 0.9 per cent in 2019. A
marginal decline in Chinese steel production as infrastructure and
construction activity in that nation slows is expected to be outweighed
by strong steel production growth in the rest of the world, particularly in
India.
Steel production and consumption
China’s steel production reached a record high in April 2017
China’s steel production increased by 4.1 per cent year-on-year in the
first five months of 2017, and reached a monthly record of almost 73
million tonnes in April. Growth in China’s steel production was driven by
stronger domestic demand and higher prices, with exports declining.
Steel exports were down by 26 per cent in the first five months of the
year. There has been an accumulating suite of trade barriers against
Chinese steel products. Additionally, China’s steel has become less
competitive in export markets, as strong domestic demand allows
producers to charge higher prices to offshore buyers.
Apparent steel usage increased by 8.8 per cent year-on-year in the five
months to May 2017. Steel consumption was supported by ongoing
infrastructure investment, with infrastructure fixed asset investment (FAI)
up by 21 per cent year-on-year in the five months to May.
Resources and Energy Quarterly June 2017
EU
US
Brazil
RussiaChina
Japan
South Korea
India
800mt
-10
-5
0
5
10
-5 0 5 10
Consum
ption g
row
th (
per
cent)
Production growth (per cent)
2012 to 2015
EU
US
Brazil
Russia
China Japan
South Korea
India
800mt
-10
-5
0
5
10
-5 0 5 10
Consum
ption g
row
th (
per
cent)
Production growth (per cent)
2016 to 2019 (forecast)
Resources and Energy Quarterly June 2017 25
Figure 3.3: China’s monthly steel production and exports, YoY change
Notes: Infrastructure FAI (fixed asset investment) series begins in 2015; Consumption is
apparent steel consumption.
Sources: Bloomberg (2017) National Bureau of Statistics of China
Source: Bloomberg (2017) National Bureau of Statistics of China; Bloomberg (2017)
China Customs General Administration
China’s steel production and consumption forecast to moderate
Steel consumption in 2017 is forecast to be little changed from 2016
levels. Although the Central Government has increasingly signalled the
prioritisation of economic growth and stability over financial reform and
debt control this year providing some support to steel consumption
through ongoing government investment this is expected to be offset
by the impact of declining demand from other sectors.
Construction activity has slowed since more stringent lending and buying
policies in the real estate sector were implemented in 2016 and early
2017. Construction FAI was down 20 per cent year-to-date in May 2017.
However, price growth in real estate outside of the big cities indicates
the potential for further real estate development activity. If this occurs,
steel production and consumption growth could be larger than what is
currently forecast.
The steel sector PMI for May 2017 points to steel production remaining
robust in the short term. The steel PMI typically leads steel production by
a month. Capacity cuts which tend to increase steel producers’
margins are also expected to provide incentives for increased
production in the short-term.
Nevertheless, production growth is expected to moderate, and output is
forecast to decline marginally (by 0.4 per cent) in 2017. Declining
exports, industry consolidation, cuts to old/inefficient capacity (with a 50
million tonne target for 2017), and the enforcement of environmental
restrictions, are all expected to contribute to the marginal decline in
production.
Beyond 2017, steel production is forecast to decline by 0.6 per cent in
both 2018 and 2019, weighed down by relatively subdued domestic
demand. Government spending is expected to ease, and a renewed
focus on financial stability and reigning in debt is expected to dampen
private investment and, as a result, steel consumption.
China’s recently announced ‘One Belt One Road’ plan has the potential
to increase China’s steel needs beyond what has been forecast.
However, there is insufficient clarity at this time regarding how the
initiative will be implemented and, in turn, how it will affect steel demand.
-20
0
20
40
2012 2013 2014 2015 2016 2017
Per
cent
Construction FAI Infrastructure FAI Consumption
Figure 3.2: China’s monthly FAI and steel consumption, YoY change
-10
0
10
20
30
-40
0
40
80
120
2012 2013 2014 2015 2016 2017
Per
cent
Per
cent
Steel exports Steel production (rhs)
Resources and Energy Quarterly June 2017 26
Figure 3.4: India’s monthly steel production and exports, YoY change
Source: Bloomberg (2017) World Steel Association; Bloomberg (2017) Reserve Bank of
India
India forecast to become the second largest steel producer in 2018
India’s steel production increased by 7.4 per cent year-on-year in the
five months to May, as new capacity continued to be completed.
Domestic consumption has not entirely absorbed the growing output
exports of steel have surged although from a low base growing by
142 per cent year-on-year in April 2017. Steel imports decreased by 23
per cent over the same period, driven by both increased domestic
production and restrictive trade policies.
India’s steel consumption is expected to be bolstered by substantial
government investment in infrastructure, affordable housing and urban
development. Preferential treatment of Indian-made steel in government
projects is also expected to benefit the domestic industry.
India remains on track to overtake Japan as the world’s second largest
steel producer in 2018, with production forecast to grow by 7.0 per cent
to 110 million tonnes, and by a further 6.3 per cent in 2019 to 117 million
tonnes. However, there remains several headwinds to India’s official
steel production targets, including constrained access to raw materials,
land and finance. It is also unclear whether demand and export growth
will be strong enough to absorb the forecast rapid additions to capacity.
Production in the rest of world buoyed by a rebound in steel demand
Steel production in the rest of the world (excluding China and India)
increased by 4.7 per cent year-on-year in the five months to May.
Japan’s steel production grew 1.5 per cent year-on-year in the five
months to May. Japan’s industrial production and manufacturing indices
reached their highest levels in nine years in April 2017, supporting steel
production growth.
Similarly, strong industrial production growth in both the EU and the US
has supported growth in steel production, of 4.1 per cent and 2.3 per
cent year-on-year in the five months to May, respectively. In the US,
there remains substantial uncertainty surrounding President Donald
Trump’s infrastructure spending plans. Earlier expectations of a surge in
steel demand may not eventuate, at least in the short-term.
Steel production in South Korea has declined by 2.8 per cent year-on-
year in the two months to May, partly weighed down by declining vehicle
production. The decline follows strong growth of 4.7 per cent in the
March 2017 quarter.
Steel production in the rest of the world is forecast to grow by 2.5 per
cent in 2017, before slowing to 1.8 per cent and 1.7 per cent in 2018 and
2019, respectively.
Trade barriers continue to grow for steel products
There has been a growing suite of anti-dumping duties and other
restrictive trade policies on steel products, largely in response to high
volumes of cheap steel imports from China in 2015 and 2016.
In the EU, additional anti-dumping duties on steel products from China
brought the coverage to almost 20 steel products. The US has imposed
more than 190 duties on iron and steel product imports from China. In
April 2017, the US Department of Commerce initiated an investigation
into the impact of steel imports on national security. The investigation
wad due to be completed in June, and may result in additional
restrictions on imports from many steel producing countries.
The growing number of trade barriers may act as a constraint on steel
production growth in China and other Asian producers, which in turn has
potential implications for Asian import demand for iron ore and
metallurgical coal.
-10
-5
0
5
10
15
20
-80
-40
0
40
80
120
160
Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17
Per
cent
Per
cent
Steel imports Steel production (rhs)
Resources and Energy Quarterly June 2017 27
Annual percentage change
Crude steel consumption 2016 s 2017 f 2018 f 2019 f 2017 f 2018 f 2019 f
European Union 28 171 171 174 177 0.5 1.4 1.8
United States 103 107 112 114 3.5 5.1 1.6
Brazil 19 20 21 21 3.9 3.0 3.0
Russia 43 41 40 40 -4.0 -1.5 -0.1
China 712 708 699 689 -0.5 -1.3 -1.3
Japan 67 69 70 71 3.0 1.1 1.6
South Korea 57 57 57 58 -0.4 1.0 1.3
India 95 102 108 115 6.7 6.7 6.2
World steel consumption 1,629 1,647 1,665 1,683 1.1 1.1 1.1
Notes: s estimate f forecast
Source: World Steel Association (2017); Department of Industry, Innovation and Science (2017)
Table 3.1 World steel consumption and production (million tonnes)
Crude steel production 2016 2017 f 2018 f 2019 f 2017 f 2018 f 2019 f
European Union 28 162 166 169 173 2.3 2.0 2.0
United States 78 80 84 84 2.5 4.0 0.8
Brazil 31 32 34 35 2.4 4.7 4.7
Russia 71 70 69 69 -1.6 -0.7 -0.1
China 808 805 800 795 -0.4 -0.6 -0.6
Japan 105 108 109 111 3.0 1.0 1.8
South Korea 69 69 71 72 0.9 1.9 2.1
India 96 103 110 117 7.5 7.0 6.3
World steel production 1,629 1,651 1,666 1,682 1.3 1.0 0.9
Resources and Energy Quarterly June 2017 28
Resources and Energy Quarterly June 201729
Figure 4.1: Iron ore price, quarterly, FOB Australia and CFR China
Figure 4.2: Monthly iron ore and steel prices, end of month port stocks
Source: Bloomberg (2017) Metal Bulletin; Department of Industry, Innovation and Science
(2017)
Notes: Iron ore price is FOB Australia; Steel price is a composite of China’s steel prices
Source: Bloomberg (2017) SteelHome; Bloomberg (2017) Metal Bulletin; Bloomberg
(2017) Custeel; Department of Industry, Innovation and Science (2017)
Market summary
Australia’s iron ore export earnings for 2016–17 have been revised down
by $7.5 billion from the forecast in the March 2017 Resources and
Energy Quarterly, to $65 billion, reflecting an earlier than expected
decline in the iron ore price. This nevertheless still represents an
increase in export earnings of 33 per cent on 2015–16.
The iron ore price has been revised down slightly for the next three
years. Higher prices at the end of 2016 and start of 2017 stimulated
additional supply, placing additional downward pressure on prices. The
iron ore price is now forecast to average US$62 a tonne (FOB Australia)
in 2017. With demand expected to be steadily outpaced by the growth of
low-cost supply, the price is forecast to decline to US$48 a tonne in
2018 and to US$47 a tonne in 2019. Australia’s export earnings are
forecast to decline to $58 billion in 2017–18, and $55 billion in 2018–19.
Prices
Growing low-cost supply to place downwards pressure on iron ore price
The iron ore price fell sharply in the June quarter, at one point reaching
a 12-month low of US$47 a tonne (FOB Australia) in mid-June, before
rebounding late in the month. While the decline in the iron ore price was
expected, it occurred earlier than forecast in the March 2017 Resources
and Energy Quarterly. As a result, the iron ore price forecast has been
revised down from US$65 a tonne (average) to US$62 a tonne in 2017.
The iron ore price is forecast to average US$55 a tonne in the second
half of 2017. The recent strength of China’s steel sector (please refer to
the Steel chapter) is expected to provide some short-term support.
Nevertheless, the iron ore price is forecast to ultimately decline. Iron ore
port stocks in China have steadily grown to record highs, reaching an
estimated 140 million tonnes in June 2017. The seaborne iron ore
market is forecast to remain well-supplied by low-cost producers in 2018
and 2019. Demand for iron ore is forecast to moderate over the same
period, as steel production declines in China.
High iron ore prices at the end of 2016 and start of 2017 resulted in a
rebound in iron ore production in China and other nations, such as Iran.
An extended period of low prices is likely to be required to displace the
additional supply. The price forecast has been revised down from US$51
per tonne to US$48 a tonne in 2018, and to US$47 a tonne in 2019.
0
50
100
150
200
250
2008 2010 2012 2014 2016 2018
2017 U
S$ a
tonne
CFR China FOB Australia
0
1,500
3,000
4,500
0
50
100
150
2014 2015 2016 2017
RM
B
US
$ a
tonne
Million tonnes
Port stocks Iron ore price Steel price index (rhs)
Resources and Energy Quarterly June 2017 30
Figure 4.3: 58 and 62 per cent iron content prices
Notes: Prices are CFR China; Right axis inverted; Difference represents the difference
between the 58 per cent iron content price relative to the 62 per cent price.
Source: Bloomberg (2017) Custeel
Box 4.1: Growing spread between low and high grade iron ore price
While the ‘benchmark’ iron ore price is for 62 per cent iron content ore,
usable iron ore for steelmaking generally ranges between 58 to 65 per
cent iron content. There are premiums/discounts for the price of
higher/lower grade ores.
A growing divergence between the price for low grade ores compared
with 62 per cent ores has recently emerged. In April–May 2017, the price
for 58 per cent iron content fines was 27 per cent lower than the 62 per
cent price, compared to 19 per cent a year earlier. The difference has
averaged 14 per cent since 2012.
Factors likely to impact on the price spread over the short and long term
include:
• the increase in the metallurgical coal price following Cyclone Debbie.
The higher metallurgical coal prices has increased demand for higher
grade iron ore, as it requires less metallurgical coal for the steel-
making process. The effects of this are expected to be short-lived, as
the effect of Cyclone Debbie on the metallurgical coal price
dissipates.
• increased low-grade exports from India, following the resumption of
mining and the removal of export taxes in the last couple of years.
The additional supply may weigh on the price of low-grade ores.
However, exports from India should ease, as their monsoon season
peaks (usually lasting from May to September).
• more stringent environmental regulations in China. This drives a
growing preference for higher grade iron ore, which increases the
efficiency of steel mills and reduces emissions.
• conversely, the demand for low grade ores may be supported by
steel-makers looking to blend those ores with the growing supply of
high grade ores from Brazil, in order to reduce costs.
While the gap has recently narrowed, as some of the short term
pressures ease, it is still larger than the historical average. There is
some uncertainty about whether the larger price spread will be sustained
due to longer-term structural factors.
Australia generally has high quality iron ore reserves (close to the 62 per
cent benchmark). However, some Australian producers with lower grade
mines may be exposed to persistently lower prices for low-grade ore.
-30
-20
-10
00
60
120
180
2012 2013 2014 2015 2016 2017
Per
cent
US
$ a
tonne
Difference (rhs) 58 per cent 62 per cent
World trade
World trade in iron ore is forecast to grow by 2.6 per cent in 2017 and by
2.9 per cent in 2018, before moderating to 0.9 per cent in 2019. At 1.59
billion tonnes, world iron ore trade in 2019 will be twice the 2009 volume.
China’s iron ore import demand faces headwinds but forecast to grow
China’s iron ore imports increased by 1.8 per cent year-on-year in April
and May, following strong year-on-year growth in the March quarter of
12 per cent. The slowing pace of import growth — predominantly from
Australia — was largely due to weather disruptions in the Pilbara, which
affected mine/rail operations and iron ore shipments.
China’s import demand may have also been weighed down by growing
domestic iron ore production and increased scrap steel use. The
government-mandated closure of illegal induction furnaces by 30 June
2017 has resulted in lower scrap prices and increased scrap use, further
reducing iron ore demand. Growing scrap use is expected to ease, as
stockpiles are drawn down. Further, domestic iron ore production
reacted to the surge in iron ore prices as 2016 progressed. China’s iron
ore production (adjusted for quality) was up 22 per cent year-on-year in
April and May 2017.
Resources and Energy Quarterly June 2017 31
Figure 4.4: China’s iron ore imports and production, YoY change
Figure 4.5: India’s iron ore production and consumption
Notes: China’s iron ore production has been adjusted for quality
Source: Bloomberg (2017) China Customs General Administration; Bloomberg (2017)
Antaike Information Development
Notes: Consumption is apparent iron ore consumption.
Source: Bloomberg (2017) World Steel Association; Department of Industry, Innovation
and Science (2017)
It is estimated that 21 per cent of China’s pig iron was produced using
domestic ore in March and April, in contrast to the 2016 average of 14
per cent. However, China’s iron ore mines are high cost and their ore of
low grade, and the displacement of domestic ore with imports is
expected to resume. China’s iron ore imports are forecast to grow by 0.7
per cent and 0.3 per cent in 2018 and 2019, respectively.
India’s iron ore production continues to grow
India’s iron ore production growth has been driven by supportive
government policies, including streamlined approval processes and the
easing of mining and export restrictions. Iron ore production is expected
to be further supported by plans to auction eight mining blocks in the
2017–18 Indian financial year.
There remains ongoing challenges with transporting iron ore from the
mines in the western States to the steel mills in the eastern coastal
States. The prospect of government intervention in the iron ore market to
ensure low-cost materials for its steel industry may also dampen
incentives for the development of new mines. A government-appointed
committee is currently developing recommendations for a domestic
pricing mechanism.
Despite growing production, India is expected to become a net importer
of iron ore by 2019. Consumption from its rapidly growing steel industry
is expected to outpace domestic iron ore production.
Seaborne iron ore market to remain well-supplied
The seaborne iron ore market is forecast to remain well-supplied.
Increased output from low-cost, high-grade producers in Australia and
Brazil is expected to displace high-cost producers. In 2019, Australia is
forecast to account for 56 per cent of global seaborne trade, up from 54
per cent in 2016, while Brazil is forecast account for 26 per cent of
seaborne trade, up from 24 per cent in 2016.
Iron ore exports from Brazil doubled in the first five months of 2017
compared to the same period in 2016, to 70 million tonnes. Strong
export growth is forecast for the next two and a half years. Vale has
reaffirmed their production target of 360–380 million tonnes in 2017, and
is on track to achieve the 400 million tonne long-term target at the end of
2018, supported by the ramp up of the S11D and Itabiritos projects.
Anglo American’s Minas Rio mine is expected to reach full capacity of
27 million tonnes by 2020.
-20
-10
0
10
-15
0
15
30
Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17
Million tonnes
Million tonnes
Australia Brazil Rest of world Production
0
50
100
150
200
250
2009 2011 2013 2015 2017 2019M
illion tonnes
Production Consumption
Resources and Energy Quarterly June 2017 32
Figure 4.6: Forecast iron ore production in 2019
Figure 4.7: Australia’s iron ore export volumes and values
Notes: China’s iron ore production adjusted for quality; Based on a forecast iron ore price
of US$53 a tonne CFR China.
Source: AME Group (2017); Department of Industry, Innovation and Science
Source: ABS (2017) International Trade, Australia, Cat. No. 5465.0; Department of
Industry, Innovation and Science (2017)
While the resumption of mining at Vale and BHP’s Samarco mine looks
increasingly unlikely in 2017 — with ongoing debt restructuring and
environmental licensing challenges — it is still expected to add 19
million tonnes to Brazil’s output by the end of 2019.
Australia
Exploration expenditure remains at historical lows
Expenditure declined by 7.3 per cent to $54 million in the March 2017
quarter, the lowest quarterly figure since 2006. Growing global supply
and expectations of low prices has discouraged exploration activity.
Australia’s iron ore export earnings revised down
Australia’s estimated export earnings for 2016–17 have been revised
down to $65 billion, but this still represents a 33 per cent increase from
2015–16. The revision is predominantly due to the earlier than expected
decline in the iron ore price in the June quarter.
A particularly severe monsoon season in February and March affected
mining and rail operations across the Pilbara. Nevertheless, 2016–17
shipment guidance from Rio Tinto and Fortescue Metals Group was
unchanged at 330–340 million tonnes and 165–170 million tonnes,
respectively. BHP’s production guidance narrowed to 268–272 million
tonnes, from 265–275 million tonnes. Iron ore shipments from Port
Hedland grew by 12 per cent year-on-year in both April and May, and hit
a monthly record of 44 million tonnes in May, reflecting strong export
growth in the months following the wet season.
A fire at BHP’s Mt Whaleback processing plant and a derailment on the
Newman to Port Hedland line — both in June — may potentially disrupt
shipments. Mining has resumed in the unaffected areas, and the rail line
has restarted at limited capacity. It is unclear if exports will be affected.
Atlas Iron has deferred its Corunna Downs project, originally set to
commence production in 2018. The company cited market conditions
and delays in approval processes as major factors contributing to the
decision. Their production guidance for 2017–18 has been maintained at
9–10 million tonnes, due to increased production at the Mt Webber mine.
Export earnings for 2017–18 have been revised down to $58 billion, and
for 2018–19 to $55 billion. While modest output growth is expected to be
assisted by ongoing productivity improvements and additions to
capacity, the impact will be offset by the effects of a lower iron ore price.
0
30
60
90
0
300
600
900
2008–09 2010–11 2012–13 2014–15 2016–17 2018–19
2016–17 A
$b
Million tonnes
Volume Value (rhs)
0
25
50
75
100
0
250
500
750
1,000
Australia Brazil China India Rest ofworld
Per
cent
Million tonnes
Production Proportion of production that is profitable (rhs)
Resources and Energy Quarterly June 2017 33
Annual percentage change
World trade in iron ore 2016 s 2017 f 2018 f 2019 f 2017 f 2018 f 2019 f
Iron ore imports
– European Union 28 140 138 138 138 -1.1 0.3 0.0
– Japan 131 133 134 136 1.4 1.0 1.8
– China 1,035 1,038 1,046 1,049 0.3 0.7 0.3
– South Korea 75 71 72 74 -5.2 1.9 2.1
– India 4 7 8 13 90.0 10.5 79.6
Iron ore exports
– Australia 808 851 885 897 5.3 3.9 1.3
– Brazil 364 382 408 419 4.9 6.8 2.8
– India 9 8 7 7 -13.9 -9.6 0.0
– Ukraine 38 42 42 42 10.8 0.1 0.4
World trade 1,492 1,531 1,576 1,590 2.6 2.9 0.9
Notes: s estimate. f forecast.
Source: World Steel Association (2017); Department of Industry, Innovation and Science (2017)
Table 4.1 World iron ore trade
Resources and Energy Quarterly June 2017 34
Annual percentage change
World Unit 2016 2017 f 2018 f 2019 f 2017 f 2018 f 2019 f
Prices bc
– nominal US$/t 52.7 62.4 49.1 49.2 18.5 -21.4 0.4
– real d US$/t 53.9 62.4 47.9 47.0 15.8 -23.3 -1.9
Notes: b fob Australian basis c Spot price, 62% iron content basis. d In 2017 US dollars. h Crude steel equivalent and iron . Crude steel is defined as the first solid state of production after
melting. In ABS Australian Harmonized Export Commodity Classification, crude steel equivalent includes most items from 7206 to 7307, excluding ferrous waste and scrap and ferroalloys.
i In 2016–17 Australian dollars. f forecast. s estimate.
Source: ABS (2017) International Trade in Goods and Services, Australia, Cat. No. 5368.0; AME; Company Reports.
Table 4.2 Iron ore outlook
Australia Unit 2015–16 2016–17 s 2017–18 f 2018–19 f 2016–17 s 2017–18 f 2018–19 f
Production
Steel hs Mt 5.05 5.35 5.26 5.26 6.1 -1.7 -0.1
Iron ore Mt 836.1 873.5 912.1 934.6 4.5 4.4 2.5
Exports
Steel hs Mt 0.77 0.92 0.98 0.98 20.2 6.3 -0.1
– nominal value A$m 598 752 740 739 25.9 -1.6 -0.1
– real value i A$m 608 752 725 708 23.7 -3.7 -2.3
Iron ore Mt 785.8 825.4 872.8 893.1 5.0 5.7 2.3
– nominal value A$m 47,799 64,502 59,473 57,139 34.9 -7.8 -3.9
– real value i A$m 48,635 64,502 58,221 54,732 32.6 -9.7 -6.0
Resources and Energy Quarterly June 2017 36
Figure 5.1: Spot prices
Figure 5.2: Benchmark contract prices for Australian metallurgical coal
Source: IHS (2017)
Source: Department of Industry; Innovation and Science (2017)
Market Summary
Global metallurgical coal spot prices spiked in April, in the wake of the
destruction left by Cyclone Debbie in Queensland, the world’s largest
metallurgical coal producing region. Important rail links to export ports
were cut, tightening the export market. Since April, a return to normal of
rail operations has seen prices decline. Prices are forecast to fall
modestly further over the rest of the outlook period. Overall export
earnings for 2016–17 are estimated to have been a record $36 billion.
However, due to price declines over the outlook period, export earnings
for 2017–18 and 2018–19 are forecast to be lower.
Prices
Spot price decline expected to continue
Spot prices rallied in April 2017, to average US$261 a tonne for the
month. The rally in price was largely driven by a sharp decline in exports
from Queensland, caused by the fallout from Cyclone Debbie. Since the
rally in April, spot prices have started to decline, with prices in the June
quarter estimated to have averaged US$187 a tonne.
The combination of easing Government-mandated coal mine closures —
and restricted days of coal mine operation in — China, and a recovery in
metallurgical coal operations in Australia, are expected to have a
normalising (no weather disruptions) impact on global production levels.
These factors are forecast to result in spot prices in 2017 averaging
around US$158 a tonne.
June quarter benchmark contract prices paid to Australian metallurgical
coal producers by Japanese steel producers were still not settled as of
late-June. The significant delay in landing on a June quarter price was
largely due to Cyclone Debbie. Reports suggest that, in lieu of a
quarterly contract price, producers and consumers adopted a spot or
index-linked approach as a pricing mechanism for the June quarter.
Australian benchmark prime hard metallurgical coal contract prices are
forecast to average US$191 a tonne in 2017 — a 67 per cent increase
from 2016, reflecting the high March quarter contract price of US$285 a
tonne. Contract prices for the remaining two quarters are forecast to be
substantially lower.
0
50
100
150
200
250
300
350
Jul-11 Apr-12 Jan-13 Oct-13 Jul-14 Apr-15 Jan-16 Oct-16
US
$ a
tonne
Australian hard coking coal Australian low volatility PCI
0
50
100
150
200
250
300
350
400
Dec-03 Dec-06 Dec-09 Dec-12 Dec-15 Dec-18
2017 U
S$ a
tonne
Resources and Energy Quarterly June 2017 37
Figure 5.3: Monthly import volumes of top three major importers
Source: IHS (2017)
The fall in price in the latter half of 2017 is expected to be driven by both
increased metallurgical coal production in China and a return to average
production levels in Australia. Price declines may also be exacerbated
by further increases in metallurgical coal production at mines unaffected
by Cyclone Debbie, as producers (even high-cost ones) respond to the
(still relatively high) price level.
Australian benchmark metallurgical coal contract prices are forecast to
decline by 28 per cent in 2018, to US$137 a tonne. A further decline of
13 per cent to $US119 a tonne is forecast in 2019, as import demand
and supply normalise. China is expected to be a large contributor to the
improved balance between supply and demand, as its metallurgical coal
production increases. Spot prices are expected to follow the same trend
as contract prices, with an increase in the average price in 2017 but
declines in 2018 and 2019.
Premium hard coking coal spot prices are forecast to increase by 8.0 per
cent in 2017 to US$159 a tonne. In 2018, premium spot prices are
forecast to decline by 18 per cent to US$130 a tonne, with a further 14
per cent decline to US$112 a tonne forecast in 2019.
World trade
World metallurgical coal trade in 2017 is forecast to decline by 3.0 per
cent from 2016 levels, to 306 million tonnes, as import demand from
China declines. In 2018, a decline in metallurgical coal demand for steel
production in China is expected to be partially offset by increased import
demand from India, with trade forecast to decline by only 1.0 per cent to
302 million tonnes. In 2019, world trade is forecast to increase by 1.0 per
cent to 306 million tonnes. This increase is expected to be driven by
growing demand from India.
China’s metallurgical coal imports to decline over the outlook period
China is the largest metallurgical coal consumer, the second largest
importer, and the fourth largest consumer of Australian metallurgical
coal. China’s metallurgical coal imports rose by 42 per cent year-on-year
in the five months to May 2017.The increase in imports was supported
by the highest steel production output on record in China in April 2017.
Despite the year-on-year lift in imports in the first four months of 2017,
metallurgical coal imports are forecast to gradually decline from 2016
levels over the rest of 2017 — declining by 5.9 per cent to 56 million
tonnes, as China’s revised coal mining closure policies continue to take
effect. The Chinese Government has made it clear that specialty coal
output (i.e. metallurgical coal) will not be cut. This change in policy — as
well as a moderate level of imports — is expected to ensure sufficient
metallurgical coal supply for China’s domestic steel production over
2017.
China’s metallurgical coal imports are forecast to decline by 11 per cent
in 2018 to 50 million tonnes, and by a further 12 per cent in 2019 to 44
million tonnes. The outlook for metallurgical coal imports in China is
expected to be impacted by moderating growth in domestic steel
demand, as Beijing’s fiscal stimulus fades and activity cools in the
construction sector.
0
1
2
3
4
5
6
7
8
9
Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17M
illion tonnes
China India Japan
Resources and Energy Quarterly June 2017 38
Figure 5.4: Major importers
Source: IHS (2017), Department of Industry, Innovation and Science (2017)
India’s metallurgical coal imports are forecast to increase by 8.5 per cent
to 56 million tonnes in 2018, and by a further 6.3 per cent to 60 million
tonnes in 2019. While the further development and expansion of India’s
steel industry could underpin even stronger metallurgical coal import
growth, challenges surrounding access to raw materials, land and
finance, have the potential to limit growth in the steel industry.
Japan’s metallurgical coal imports hold steady
Japan is the third largest importer of metallurgical coal, and the second
largest consumer of Australian metallurgical coal. Japan’s metallurgical
coal imports declined by 5.9 per cent year-on-year in the four months to
April 2017, following a 5.8 per cent year-on-year increase over 2016.
The increase in imports in 2016 can be partially attributed to re-stocking
activities by steel producers. Metallurgical coal imports in 2017 are
forecast to remain similar to 2016 levels, at 53 million tonnes, supported
by expected higher steel exports and exports of finished goods (such as
automobiles).
Japan’s metallurgical coal imports are forecast to increase by 0.9 per
cent to 54 million tonnes in 2018, and stay close to that level in 2019.
Steady growth in imports is expected to be supported by steady
Japanese steel production and exports of steel-intensive goods.
World exports
United States’ metallurgical coal exports rise for the first time in 5 years
Australia is the world’s largest metallurgical coal exporter. The United
States, Canada, Russia and Indonesia, all rank after Australia. The US
makes up 17 per cent of the seaborne market.
In the four months to April, 2017, the United States’ metallurgical coal
exports increased by 24 per cent year-on year, as producers responded
to higher metallurgical coal prices. This significant increase in exports
follows continuous calendar year declines since 2012.
Over the rest of 2017, exports are expected to fall back in line with falling
metallurgical coal prices. Falling metallurgical coal prices will affect US
producers in particular, due to the relatively high cost nature of their
operations. In 2017, US exports are forecast to decline by 2.7 per cent to
36 million tonnes.
India’s metallurgical coal imports are forecast to increase
India is the world’s largest importer of metallurgical coal. It is also the
largest consumer of Australia’s high quality metallurgical coal, and is
expected to remain so over the outlook period. India’s metallurgical coal
imports declined by 16 per cent year-on-year in the March quarter. This
decline follows a year-on-year 12 per cent increase in the December
quarter, which came about despite the sharp rise in metallurgical coal
prices.
Despite the March quarter year-on-year decline, India’s metallurgical
coal imports are forecast to increase by 2.0 per cent from 2016 levels to
52 million tonnes in 2017. The rise will be driven by an increased need
for metallurgical coal to support local steel production. Government
investment is expected to spur spending on infrastructure, and increase
growth in the construction sector, both of which require steel.
0
10
20
30
40
50
60
70
India South Korea China Japan EU
Million tonnes
2016 2019 f
Resources and Energy Quarterly June 2017 39
Figure 5.5: United States exports of metallurgical coal
Notes: s Estimate; f Forecast
Source: IEA (2017) Coal Information 2016; Department of Industry, Innovation and Science (2017)
Source: IEA (2017); Department of Industry, Innovation and Science
Table 5.1: World metallurgical coal trade
US metallurgical coal exports are forecast to decline by 8.3 per cent to
33 million tonnes in 2018, with a further decline of 6.1 per cent to 31
million tonnes in 2019. Declines will be underpinned by softer import
demand from China, and by declines in the metallurgical coal price,
which will deter high-cost producers.
Russia’s exports continue to increase year-on-year
Russia’s metallurgical coal exports increased by 12 per cent, year-on-
year in the first four months of 2017 — on the back of higher
metallurgical coal prices. The majority of Russia’s metallurgical coal
exports to date in 2017, when to Ukraine. Exports over 2017 are forecast
to increase by 7.0 per cent to 24 million tonnes, due to strong import
demand from Russia’s key markets, such as Ukraine and South Korea.
In 2018 Russia’ s exports are forecast to increase by 3.0 per cent to 24
million tonnes and to increase by a further 3.0 per cent to 25 million
tonnes, in 2019. Growth in exports are expected to be supported by
lower domestic production costs and profitable metallurgical coal prices.
Annual percentage change
World Unit 2016 s 2017 f 2018 f 2019 f 2017 f 2018 f 2019 f
Metallurgical coal imports
─ European Union 28 Mt 42 43 43 43 1.7 0.0 0.8
─ Japan Mt 53 53 54 54 -0.3 0.9 0.9
─ China Mt 60 56 50 44 -5.9 -10.7 -12.0
─ South Korea Mt 36 37 37 38 2.0 0.0 2.7
─ India Mt 51 52 56 60 2.0 8.5 6.3
Metallurgical coal exports
─ Australia Mt 186 183 186 192 -1.7 1.8 3.2
─ Canada Mt 28 28 29 29 1.2 1.2 1.2
─ United States Mt 37 36 33 31 -2.7 -8.3 -6.1
─ Russia Mt 22 23 24 25 7.0 3.0 3.0
World trade Mt 315 306 302 306 -3.0 -1.0 1.0
0
10
20
30
40
50
60
2014 2015 2016 2017 2018 2019
Million tonnes
Resources and Energy Quarterly June 2017 40
Figure 5.6: Australia’s metallurgical coal production
Figure 5.7: Australia’s metallurgical coal export volumes and values
Source: Department of Industry; Innovation and Science (2017)
Source: Department of Industry; Innovation and Science (2017)
Australia’s production and exports
Australia's production to stay robust
Australia’s metallurgical coal production is estimated to have increased
by 2.0 per cent to 193 million tonnes in 2016–17. A number of mines
were adversely affected by Cyclone Debbie late in the March quarter
and into the June quarter. However, the cyclone affected export tonnage
more so than production; many mines reported that the effects of the
cyclone on production were minimal. In 2016–17, the metallurgical coal
market highlights were higher metallurgical coal prices and a strong
rebound in import demand from China.
In 2017–18, production is forecast to increase by 2.4 per cent to 198
million tonnes, assisted by the start-up of operations at the Byerwen
mine in Queensland. In 2018–19, production is expected to increase by
a further 1.6 per cent to 201 million tonnes, as ramp-ups in production at
Byerwen (3.5 million tonnes) and the start-up of operations at Eagle
Downs (1.4 million tonnes) — both in Queensland — take effect.
Australia’s export volumes and export earnings are estimated to
increase amidst higher prices
Australia’s metallurgical coal export volumes in 2016–17 are estimated
to have declined by 2.9 per cent to 183 million tonnes. Export volumes
were adversely affected by export tonnage delays in the June quarter,
due to damage from Cyclone Debbie.
Many mines’ ability to transport their output to the major metallurgical
coal export terminal (Dalrymple Bay) for export were affected by the
temporary closure of the Goonyella rail line, which was damaged by the
floods associated with Cyclone Debbie. Affected mines included Hail
Creek, South Walker Creek, Isaac Plains, Carborough Downs, Caval
Ridge, Peak Downs and Foxleigh. Around 6 million tonnes of exports are
estimated to still be affected by the temporary closure of the Goonyella
rail line.
170
175
180
185
190
195
200
205
2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
Million tonnes
0
10
20
30
40
50
0
50
100
150
200
250
2002–03 2005–06 2008–09 2011–12 2014–15 2017–18
2016–17 A
$ b
illion
Million tonnes
Volume Value (rhs)
Resources and Energy Quarterly June 2017 41
Stockpiled tonnages have been, or are in the process of being sent as
delayed cargoes. As of mid-May, around 29 ships had been waiting to
be loaded at Dalrymple Bay Coal Terminal. Export unit values in the
June quarter are expected to be affected by a change in pricing
mechanisms, with more cargoes priced off spot rather than the contract
price (due to no settled contract price in the June quarter).
While the price spike in late 2016 and April 2017 bumped up the export
earnings of some Australian producers, other producers were adversely
affected due to the export delays. Overall, 2016–17 export earnings are
estimated to have increased by 77 per cent to reach a record high of $36
billion.
In 2017–18, Australia’s export volumes are forecast to increase by 10
per cent from 2016–17 levels, to 201 million tonnes. The export of
cargoes delayed by Cyclone Debbie in the March and June quarters of
2017 is expected to more than offset the impact of weaker demand from
China. Export earnings in 2017–18 are forecast to decline by 12 per cent
from 2016–17 levels to $31 billion, impacted by lower prices.
Export volumes in 2018–19 are forecast to decline by 2.0 per cent to 197
million tonnes. This decline is expected to be largely due to a return to
normal export volumes, as the backlog from Cyclone Debbie is worked
off. Import demand from traditional consumers — including India and
Japan, as well as demand from ASEAN economies — are forecast to
increase, outweighing a decline in import demand from China. Export
earnings in 2018–19 are forecast to decline by 16 per cent to $26 billion,
driven by lower export volumes and prices.
Resources and Energy Quarterly June 2017 42
Notes: b Fob Australian basis; c Contract price assessment for high-quality hard coking coal; d In 2017 calendar year US dollars; f Forecast; g Hard coking coal fob Australia east
coast; s Estimate
Source: ABS (2017) International Trade, cat.no 5465.0; Company Reports; Bloomberg (2017) Steel Business Briefing; Department of Industry, Innovation and Science (2017)
Table 5.2: Australia’s metallurgical coal outlook
Annual percentage change
World Unit 2016 2017 f 2018 f 2019 f 2017 f 2018 f 2019 f
Contract prices b c
– nominal US$/t 114.4 191.3 140.3 124.5 67.2 -26.7 -11.2
– real US$/t 116.9 191.3 137.0 118.8 63.5 -28.4 -13.2
Spot prices g
– nominal US$/t 143.5 158.5 133.5 117.3 10.4 -15.8 -12.1
– real US$/t 146.8 158.5 130.4 112.0 8.0 -17.7 -14.1
Annual percentage change
Australia Unit 2015–16 2016–17 s 2017–18 f 2018–19 f 2016–17 s 2017–18 f 2018–19 f
Production Mt 189.3 193.0 197.6 200.7 2.0 2.4 1.6
Export volume Mt 188.0 182.5 200.7 196.7 -2.9 10.0 -2.0
– nominal value A$m 19,790 35,673 32,137 27,652 80.3 -9.9 -14.0
– real value e A$m 20,136 35,673 31,460 26,487 77.2 -11.8 -15.8
Resources and Energy Quarterly June 2017 44
Figure 6.1: Spot prices remained strong in early 2017
Figure 6.2: Japanese Fiscal Year contract prices
Source: IHS (2017)
Source: Department of Industry, Innovation and Science (2017)
Market Summary
Thermal coal exports are estimated to have added a substantial $19.2
billion to export revenue in 2016–17, and are forecast to be similar in
2017–18, at $19.1 billion. After a price spike from late 2016 to early
2017, thermal coal prices are forecast to gradually decline over the
outlook period. The decline in prices will eventually affect Australia’s
thermal coal export earnings, especially in 2018–19. Export volumes for
2017–18 and 2018–19 have been revised down from the March 2017
Resources and Energy Quarterly, due to forecast lower thermal coal
import demand from South Korea,following a change in energy policy by
the new government.
Prices
Early 2017 prices, lower than late 2016 but still much higher than before
the price surge
After reaching near five-year highs in late 2016, benchmark thermal coal
prices started to decline over the March quarter — with Australia’s
benchmark Newcastle free on board (FOB) spot price averaging US$81
a tonne. Australia’s Newcastle FOB June quarter spot price is estimated
to have dropped by 5.0 per cent from the March quarter, to average
around US$77 a tonne. While prices have declined, the fall has not been
as pronounced as expected, due to continued import demand from
China — albeit at a lower growth rate than seen in late 2016. China’s
imports of thermal coal grew by 17 per cent year-on-year in the March
quarter. The growth in imports over the first few months of the year can
be attributed to imported thermal coal being more competitively priced
than domestic coal.
The JFY 2017 (April 2017 to March 2018) benchmark price was settled
in April 2017 at US$84 a tonne, a 33 per cent increase from JFY 2016.
The increase reflects the price recovery relative to the first half of the
previous year, driven by the impact of China’s supply side policies.
Newcastle FOB spot prices are forecast to average US$77 a tonne over
2017, an increase of 15 per cent from 2016. The year-on-year increase
is largely reflective of the lower prices seen in the first half of 2016,
which dragged down the annual 2016 average price.
0
20
40
60
80
100
120
140
Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17
US
$ a
tonne
Newcastle 6000kcal Richards Bay 6000kcal QHD 5800kcal
0
20
40
60
80
100
120
140
2008 2010 2012 2014 2016 2018 f
2017 U
S$ a
tonne
Resources and Energy Quarterly June 2017 45
Figure 6.3: Monthly import volumes of China and India
Source: IHS (2017)
The JFY contract price is projected to decline over the outlook period, by
16 per cent to US$70 a tonne in JFY 2018, and by 5.0 per cent to US$67
a tonne in 2019. The falls in price are expected to be caused by
declining import demand from China — as it moves to a more diversified
energy mix — and by constrained import growth in India. Global
benchmark spot prices are expected to follow the same declining trend
as contract prices. In 2018, Australia’s Newcastle FOB spot price is
forecast to decline by 10 per cent to US$69 a tonne, and decline by 4.3
per cent to US$66 a tonne in 2019.
World trade
World thermal coal trade in 2017 is forecast to decline by 2.4 per cent to
1 billion tonnes. Trade is forecast to fall by 2.1 per cent to 990 million
tonnes in 2018, and then to decline by a further 0.4 per cent in 2019 to
986 million tonnes. Falls in trade volumes are expected to be driven by
lower import demand from China, India and South Korea; import
demand in India is only expected to pick up outside the outlook period
(post 2019). Total demand from large consumers such as China and
India is expected to be mostly met by domestic supply over the outlook
period.
A range of nations — including China — are investing in ways to achieve
higher energy efficiency by using advanced technology coal-fired power
plants. Some countries are also conducting research and development
in areas such as carbon capture and storage, to reduce carbon
emissions.
World imports
Increased import demand from China sustained in early 2017, but
forecast to decline over the outlook period
China is currently the largest consumer and importer of thermal coal in
the world, and was the second largest importer of Australian thermal
coal in 2016. China’s thermal coal imports increased by 15 per cent,
year-on-year in the first five months of the year. The increase in imports
was driven by relatively high domestic prices. High domestic prices were
due to continued lower domestic supply availability, as not all thermal
coal mines immediately reached full production capacity after the
Chinese Government eased its restrictions on production.
Over the course of 2017, Chinese domestic thermal coal prices are
forecast to stabilise in a price range of US$74–84 a tonne. This price
range is expected to enable domestic producers — as well as coal-fired
power plants — to operate profitably.
Despite the spike in imports early in the year, China’s 2017 thermal coal
imports are forecast to decline by 4.2 per cent year-on-year to 172
million tonnes, as domestic prices ease back. This declining trend is
expected to continue into 2018 and 2019. In 2018, thermal coal imports
are forecast to decline by 8.0 per cent to 158 million tonnes, and to
decline by 0.8 per cent to 157 million tonnes in 2019. The declines are
expected to be driven by China’s focus on reducing air pollution, through
the adoption of alternatives to coal-fired power generation.
0
5
10
15
20
25
Jul-07 Jul-10 Jul-13 Jul-16
Million tonnes
China India
India lowers output targets but imports forecast to continue to decline
India is the second largest consumer of thermal coal in the world, and
the second largest importer. It is the sixth largest consumer of Australian
thermal coal. India’s thermal coal imports in the first quarter of the year
fell by 22 per cent year-on-year. Imports are forecast to continue to
decline throughout 2017, despite a downgrade in the government-set
domestic production target in 2017–18.
Resources and Energy Quarterly June 2017 46
Figure 6.4: Monthly imports of Japan and South Korea
Source: IHS (2017); Department of Industry, Innovation and Science (2017)
President Moon Jae-in has made clear his plans to curb coal-fired power
generation to combat air pollution. He has done this by announcing the
following: a temporary and eventual permanent shutdown of ten aging
coal-fired power plants with a combined capacity of 3.35 GW by June
2017; an increase in the government’s consumption tax on coal; and an
election pledge to stop construction of any new coal-fired power plants,
including 5GW of coal capacity already being built. How these policy
announcements and commitments play out — in terms of the magnitude
of imports to be affected — remains to be seen.
In the four months to April, South Korea’s thermal coal imports grew by
16 per cent year-on-year. Imports for the remainder of the year are
forecast to be subdued in light of the President’s plans, with imports
declining by 1.8 per cent to 96 million tonnes in 2017. Given South
Korea’s industrialised economy and anticipated increasing energy
needs, it is expected that coal will continue to contribute to the base load
energy supply in some way. That being said, the outlook for South
Korea’s imports in 2018 and 2019 is expected to remain subdued, with
imports forecast to decline by 4.2 per cent to 92 million tonnes and by a
further 1.1 per cent to 91 million tonnes, respectively.
Coal India — the State-owned company that produces the majority of
India’s coal — has had its production target downgraded by 10 per cent
for 2017–18, to 600 million tonnes. The downgrade has been attributed
to an alignment of production with expected demand — indicating
slower-than-expected growth in national coal-fired power generation.
In 2017, India’s thermal coal imports are forecast to decline by 3 per
cent to 161 million tonnes. Further declines are expected in 2018 and
2019 — partly attributable to the Indian Government’s expected
continued stance on reducing the country’s reliance on imported thermal
coal, as well as to slow progress in power sector reform.
The Indian Government recently announced that while India was aiming
to be completely self-sufficient in thermal coal, it acknowledges that
there will likely always be some need for imported thermal coal: around
38 per cent of coal-fired generation capacity is built to imported thermal
coal specifications (higher-energy content coal). Issues within the power
sector are affecting distribution utilities and causing bottlenecks at coal-
fired power plants. In 2018, India’s thermal coal imports are forecast to
decline by 1.5 per cent to 158 million tonnes, and then to decline by 1.0
per cent to 157 million tonnes in 2019.
Japan’s thermal coal imports, forecast to remain steady
Japan is the third largest importer of thermal coal in the world and the
largest consumer of Australian thermal coal. Japan’s thermal coal
imports increased by 1.5 per cent year-on-year in the four months of
2017. Thermal coal imports in 2017 are forecast to increase by 1.3 per
cent to 140 million tonnes, supported by increasing utilisation of coal-
fired power plants and a 0.5 per cent increase in installed coal-fired
power generation capacity. Imports are forecast to increase slightly in
2018 and 2019, to 141 million tonnes and 142 million tonnes,
respectively. Stable import demand in 2018 and 2019 is expected to be
supported by steady coal-fired power generation.
South Korea's thermal coal imports forecast to decline due to new
government policy
South Korea is the third largest importer of thermal coal and third largest
consumer of Australia’s thermal coal. A downward revision from the
March 2017 Resources and Energy Quarterly has been made to South
Korea’s coal import forecast over 2017 to 2019. The revision is due to
action taken by President Moon Jae-in since his election in May 2017.
0
2
4
6
8
10
12
14
16
Jul-07 Jul-10 Jul-13 Jul-16
Million tonnes
Japan South Korea
Resources and Energy Quarterly June 2017 47
Figure 6.5: Major thermal coal exporters
Source: IEA (2017); Department of Industry, Innovation and Science
Over the outlook period, there is a possibility that the Indonesian
Government’s mandated domestic coal obligation policy may play a part
in influencing the amount of production available for export. The policy
enforces a requirement that domestic coal mines fulfil most of the
country’s coal-fired power generation needs before exports can be
initiated. At this stage, the time it will take to fully implement the policy is
unknown, with progress to date slower than anticipated.
Early strength in Colombian thermal coal exports
Colombian thermal coal exports increased by 5.7 per cent year-on-year
in the first five months of 2017, on the back of higher domestic
production. However, in May, production at the country’s largest thermal
coal mines were hard hit by heavy rainstorms, which also affected rail
and port operations. Rainstorms persisted over most of May, but by
early June, operations were believed to have returned to normal.
In 2017, Colombia’s thermal coal exports are forecast to increase by 3.9
per cent from 2016, to 92 million tonnes. In 2018, Colombia’s thermal
coal exports are forecast to increase by 2.2 per cent to 94 million tonnes,
and to increase by a further 2.7 per cent to 97 million tonnes in 2019.
Growth in exports is expected to be supported by stronger thermal coal
prices (compared to lows seen in early 2016).
This will encourage not only low-cost producers — such as Glencore,
Anglo American and BHP Billiton’s Cerrejon mine, which average
US$35.40 a tonne cost of production — but also mid-level cost
producers such as Drummond and Itocho Corporation’s La Loma and El
Descano mines (average US$47 a tonne cost of production).
Australia’s exploration, production and trade
Coal exploration up marginally, year-on-year
Australia’s exploration expenditure increased by $500,000 year–on–year
in March quarter 2017, to $23.9 million. However, exploration
expenditure declined by 28 per cent from the previous quarter.
Australia’s production projected to increase
In 2016–17, production is estimated to be similar to 2015–16, at 250
million tonnes. Stable production was supported by higher average
thermal coal contract and spot prices.
World exports
Indonesia’s exports lift on the back of higher thermal coal prices
Indonesia’s thermal coal exports increased by 11 per cent year-on-year
in the first quarter of 2017. Exports were buoyed by sustained increased
thermal coal import demand in China, and by the ramp up in Indonesian
production towards the end of 2016 — incentivised by the higher prices.
Over 2017, Indonesia’s thermal coal exports are forecast to be steady at
380 million tonnes — as thermal coal prices steadily decline, but trade at
more profitable levels compared to price lows seen in early 2016. There
is, however, potential for some small-sized producers to ramp up
production, after incurring production losses due to a prolonged wet
season earlier in the year. A ramp-up in production could see average
4700kCal prices drop, due to oversupply. Industry officials in Indonesia
are cautioning producers to show restraint when considering boosting
production.
Indonesia’s thermal coal exports are forecast to decline by 1.3 per cent
to 375 million tonnes in 2018, and fall to 373 million tonnes in 2019. The
decline in exports is likely to be supported by falling thermal coal prices
(more pronounced for lower calorific value coal, the mainstay of
Indonesian production) — discouraging high cost producers.
0
50
100
150
200
250
300
350
400
Indonesia Australia Russia Colombia South Africa
Million tonnes
2016 2019f
Resources and Energy Quarterly June 2017 48
Figure 6.6: Australia’s coal exploration expenditure
Figure 6.7: Australia’s thermal coal export volumes and values
Source: Department of Industry, Innovation and Science (2017)
Source: Department of Industry, Innovation and Science (2017)
In 2017–18, production is forecast to increase marginally, to 251 million
tonnes, driven by relatively firm thermal coal prices, but constrained by
forecast lower import demand from traditional consumers such as South
Korea.
Ramp-ups in production are expected at some large mines, including at
the Hunter Valley Operations, Narrabri and Moolarben. In 2018–19,
production is forecast to be stable at 251 million tonnes. Output is
expected to be supported by ramp-ups in production at Mangoola (up to
8.3 million tonnes a year capacity) and Ravensworth (up to 9.3 million
tonnes a year capacity), but is likely to be constrained again by lower
import demand from South Korea.
Australia’s export earnings estimated to rise in 2016 –17 and 2017–18
Export volumes in 2016–17 are estimated to have risen by 0.5 per cent
year-on-year to 202.4 million tonnes. The increase in export volumes
was powered by strong import demand from China, notably in the first
half of the financial year. Export earnings are estimated to have risen by
28 per cent year-on-year to $19.2 billion, driven by higher spot prices.
In 2017–18, export volumes are forecast to decline by 0.7 per cent to
201 million tonnes. Lower import demand from South Korea is the
reason for the slight downward revision in exports from the March 2017
Resources and Energy Quarterly. In 2017–18, export values are forecast
to stay similar to 2016–17 levels, as thermal coal contract prices and
average annual spot prices increase from 2016–17 levels, but volumes
decline. A large volume of Australia’s thermal coal exports are sold on a
contractual basis, therefore the higher negotiated price in JFY 2017 (36
per cent higher than JFY 2016) is likely to bode well for exporters in
2017–18. However, some of these gains are expected to be outweighed
by the impact of lower export volumes and spot prices.
In 2018–19, export volumes are forecast to decline by 1.0 per cent to
199 million tonnes, as Chinese, Indian and South Korean thermal coal
import demand remains relatively subdued. Export values for 2018–19
are also forecast to decline by 11 per cent to $17 billion, in line with
lower volumes and lower spot and contract prices.
0
20
40
60
80
100
120
140
0
50
100
150
200
250
Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17
US
$ a
tonne
Million d
ollars
Exploration (A$m) JFY contract (rhs) Newcastle spot (rhs)
0
5
10
15
20
25
0
50
100
150
200
250
2002–03 2005–06 2008–09 2011–12 2014–15 2017–18 f
2016–17 A
$ b
illion
Million tonnes
Volume Value (rhs)
Resources and Energy Quarterly June 2017 49
Annual percentage change
World Unit 2016 2017 f 2018 f 2019 f 2017 f 2018 f 2019 f
Contract prices b
– nominal US$/t 62 84 72 70 36.4 -14.3 -2.8
– real c US$/t 63 84 70 67 33.4 -16.3 -5.0
Spot prices d
– nominal US$/t 65 77 70 69 17.4 -8.2 -2.1
– real e US$/t 67 77 69 66 14.8 -10.3 -4.3
Coal trade Mt 1,036 1,012 990 986 -2.4 -2.1 -0.4
Imports
– Asia Mt 727 718 717 729 -1.3 0.0 1.6
– China Mt 180 172 158 157 -4.2 -8.0 -0.8
– Chinese Taipei Mt 56 57 59 60 2.5 2.5 2.5
– India Mt 166 161 158 157 -3.0 -1.5 -1.0
– Japan Mt 138 140 141 142 1.3 1.0 0.5
– South Korea Mt 98 96 92 91 -1.8 -4.2 -1.1
– Europe Mt 213 198 184 172 -7.0 -7.0 -7.0
– European Union 27 Mt 167 156 145 135 -7.0 -7.0 -7.0
– other Europe Mt 46 43 40 37 -7.0 -7.0 -7.0
Exports
– Australia Mt 202 199 200 201 -1.6 0.6 0.6
– Colombia Mt 89 92 94 97 3.9 2.2 2.7
– Indonesia Mt 379 380 375 373 0.2 -1.3 -0.5
– Russia Mt 148 151 153 155 2.0 1.3 1.3
– South Africa Mt 74 76 77 78 2.9 1.3 1.3
– United States Mt 17 20 18 16 14.4 -10.0 -11.1
Australia Unit 2015─2016 2016─2017 s 2017─2018 f 2018─2019 f 2016─2017 f 2017─2018 f 2018─2019 f
Production Mt 250.8 250.0 251.3 251.4 -0.3 0.5 0.0
Export volume Mt 201.3 202.4 201.0 199.0 0.5 -0.7 -1.0
– nominal value A$m 14,751 19,150 19,514 17,760 29.8 1.9 -9.0
– real value h A$m 15,009 19,150 19,103 17,011 27.6 -0.2 -10.9
Notes: b Japanese Fiscal Year (JFY), starting April 1, fob Australia basis. Australia–Japan average contract price assessment for steaming coal with a calorific value of 6700 kcal/kg gross air
dried; c In current JFY US dollars; d fob Newcastle 6000Kcal; e In 2017 calendar year US dollars; s Estimate; f Forecast
Source: ABS (2017) International Trade, cat.no 5465.0; IHS Inc (2017); IEA (2017) Coal Information 2017; Coal Services Pty Ltd; Queensland Department of Natural Resources and Mines
(2017); Department of Industry, Innovation and Science (2017); Company Reports
Table 6.1: Thermal coal outlook
Resources and Energy Quarterly June 2017 51
Figure 7.1: Recent movement in export unit values
Figure 7.2: Export unit value and JCC oil price forecasts
Notes: JCC price is lagged three months. Spot price index covers Japan, China, South
Korea and Taiwan and is for delivery in 4–6 weeks.
Source: ABS (2017); Argus Media (2017); Bloomberg (2017)
Source: ABS (2017); Argus Media (2017); Bloomberg (2017)
Market summary
The value of Australia’s LNG exports is forecast to increase from an
estimated $23 billion in 2016–17 to $37 billion in 2018–19. Growth in
export earnings will be supported by higher export volumes and, to a
lesser extent, higher prices. LNG is forecast to overtake metallurgical
coal as Australia’s second largest resource and energy export in 2018–
19.
Estimated export earnings in 2016–17 are $1 billion lower than forecast
in the March Resources and Energy Quarterly, with export volumes
having been curtailed by several unplanned outages at LNG plants
during the first half of 2017. Downward revisions to export earnings in
2017–18 (totalling $4.0 billion) and 2018–19 (totalling $1.6 billion) reflect
a more subdued outlook for both oil prices (to which LNG prices are
directly linked) and export volumes.
Prices
Oil price movements drive Australian LNG prices
The average price of Australian LNG (FOB) reached a one-year high of
$8.70 a gigajoule (GJ) in April — around US$6.90 per million British
thermal units (MMbtu). The increase was supported by the oil price rally
in early 2017. The majority of Australian LNG is sold on long-term
contracts linked to the price of Japan Customs-cleared Crude (JCC) oil
by a time lag of three months.
The average price of Australian LNG (FOB) is forecast to increase to
$9.30 a GJ in 2017–18 (US$7.30 per MMbtu), before steadying in 2018–
19, largely driven by movements in oil-linked contract prices.
However, low spot prices will play some role in constraining the average
export price achieved, particularly in 2018–19, as Australian exporters
increase their share of sales at spot prices. Asian spot prices (Delivered
Ex Ship) are forecast to bottom out at around $6.10 a GJ in 2019
(around US$4.70 per MMbtu), as additions to global supply capacity
outstrip growth in LNG demand.
0
20
40
60
80
100
120
0
2
4
6
8
10
12
Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17
US
$ a
barr
el
A$ a
gig
ajo
ule
Export unit values Asian spot price Lagged JCC price (rhs)
0
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50
75
100
125
150
0
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Jun-09 Jun-11 Jun-13 Jun-15 Jun-17 Jun-19
2016–17 U
S$ a
barr
el
2016–17 A
$ a
gig
ajo
ule
Export unit values JCC oil price
Resources and Energy Quarterly June 2017 52
Figure 7.3: Global liquefaction capacity and LNG demand
Figure 7.4: LNG import forecasts
Source: Nexant World Gas Model (2017); Department of Industry, Innovation and Science
(2017)
Source: Nexant World Gas Model (2017); Department of Industry, Innovation and Science
(2017)
World trade
World LNG trade is forecast to increase at an average annual rate of 7.4
per cent a year, to reach 320 million tonnes in 2019. Emerging Asia —
led by China — and Europe are expected to drive demand growth.
Prospects for growth in the imports of the world’s two largest consumers
— Japan and South Korea — are more limited.
While LNG demand is forecast to grow rapidly over the next few years, it
is expected to be outpaced by growth in supply capacity. Consequently,
the average capacity utilisation of LNG plants is expected to fall.
World imports
The imports of the world’s largest LNG buyer are set to decline
Japan’s LNG imports increased by 5 per cent year-on-year in the first
four months of 2017, with gas consumption supported by a cold winter
across North East Asia. However, the increase in LNG imports is
expected to be temporary, with Japan’s LNG imports forecast to fall from
83 million tonnes in 2016 to 78 million tonnes in 2019.
The recent restart of nuclear power generation capacity — which
competes with gas-fired power — is expected to weigh on LNG imports
from mid-2017. Japanese utility Kansai Electric Power reactivated its
Takahama No.3 and No.4 reactors in the June quarter (combined
capacity 1.7 gigawatts), after a local court injunction was overturned by
the High Court in Osaka. Five of Japan’s fleet of 42 reactors are now
operational, increasing total nuclear capacity from 2.7 gigawatts to 4.4
gigawatts.
Further reactor restarts are possible within the outlook period. Four more
reactors — with capacity totalling 4.7 gigawatts — have received
approval from Japan’s Nuclear Regulation Authority to restart. However,
the timing and scale of nuclear restarts remains a key uncertainty
affecting the outlook.
75
80
85
90
95
100
0
100
200
300
400
500
2012 2013 2014 2015 2016 2017 2018 2019
Per
cent
Million tonnes
Global capacity World demand Capacity utilisation (rhs)
0
20
40
60
80
100
Japan SouthKorea
China EmergingAsia (exChina)
Europe Rest ofworld
Million tonnes
2016 (estimate) 2019
Resources and Energy Quarterly June 2017 53
Figure 7.5: Japan’s LNG imports
Figure 7.6: South Korea’s LNG imports
Source: Nexant World Gas Model (2017); Department of Industry, Innovation and Science
(2017)
Source: Nexant World Gas Model (2017); Department of Industry, Innovation and Science
(2017)
Recent announcements in South Korea could support LNG imports
South Korea’s LNG imports are forecast to be broadly unchanged over
the outlook period — a small upward revision to the March Resources
and Energy Quarterly forecast. The new South Korean President, Moon
Jae-In, has announced several measures that could provide some
support to LNG imports over the next few years.
LNG competes with both nuclear and coal in electricity generation in
South Korea. From 2018, operations at six old coal-fired power stations
will be suspended between March and June each year, to address
worsening air pollution. In addition, two old coal-fired power stations will
begin the process of shutting down operations from July 2017, and will
close by the end of the year. A further eight coal-fired power closures
are expected before mid-2022 (brought forward from 2025), although it
is not yet clear when these shutdowns will occur. The South Korean
government has also signalled that increases in the consumption tax on
coal are likely.
The president has also pledged to close down the aged Wolsong 1
nuclear reactor, to address public concerns about nuclear safety,
although a timeline for this has not been specified. The reactor accounts
for 2.8 per cent (0.7 gigawatts) of South Korea’s nuclear capacity. If gas-
fired generation replaces reduced coal-fired and nuclear power capacity,
increased LNG imports will be required.
Emerging Asia, led by China, to drive growth in LNG demand
China’s LNG imports increased by 39 per cent year-on-year in the first
four months of 2017. Gas consumption and domestic production rose,
while pipeline imports contracted.
China’s LNG imports are forecast to increase from 27 million tonnes in
2016 to 45 million tonnes in 2019 — an average annual rise of 19 per
cent. China has agreed to large contracts for LNG imports, which will
start over the next few years, in order to meet rising gas demand. The
Chinese government is aiming to increase the share of gas in the energy
mix from 5 per cent in 2014 to 10 per cent by 2020.
The extent to which China relies on LNG to meet its growing gas needs,
however, will depend on whether domestic gas production targets can
be achieved, and on LNG’s competiveness vis-à-vis pipeline gas
imports.
0
20
40
60
80
100
2009 2011 2013 2015 2017 2019
Million tonnes
Australia North America South East Asia Middle East Other
0
5
10
15
20
25
30
35
40
2009 2011 2013 2015 2017 2019M
illion tonnes
Australia North America South East Asia Middle East Other
Resources and Energy Quarterly June 2017 54
Figure 7.7: China’s LNG imports
Figure 7.8: Global LNG supply capacity
Source: Nexant World Gas Model (2017); Department of Industry, Innovation and Science
(2017)
Notes: Liquefaction capacity is nameplate capacity less allowance for downtime and
maintenance.
Source: Nexant World Gas Model (2017); Department of Industry, Innovation and Science
(2017)
Other Emerging Asian economies are also expected to make a large
contribution to growth in global LNG imports. Growth will be underpinned
by low spot prices and the availability of floating storage and
regasification unit (FSRU) technology, which allows small volumes of
LNG to be received more cheaply. Pakistan, for example, will
commission its second FSRU in late 2017, and a further two FSRUs by
2019.
Europe’s LNG imports are expected to increase
European LNG imports are forecast to increase from 38 million tonnes in
2016 to 69 million tonnes in 2019. Rising gas consumption, falling
indigenous production (particularly in the Netherlands), and a desire to
diversify away from Russian pipeline supply are all expected to support
LNG imports. However, if LNG demand in Europe does not grow as
strongly as projected, Qatari and US LNG may be displaced, potentially
then bringing increased competition to the Asia-Pacific.
World supply
Global supply capacity to rise
The next few years are expected to see a major expansion in global
supply capacity. Global liquefaction capacity is forecast to increase from
285 million tonnes in 2016 to 382 million tonnes in 2019.
The United States will make the largest contribution to new capacity
Around half of all new capacity will come from the United States. By
2019, all five LNG projects currently under construction in the United
States are expected to have commenced operations, bringing nameplate
capacity to around 64 million tonnes. However, US exports are only
forecast to rise to around 37 million tonnes in 2019, with all of these
projects scheduled for completion late in the outlook period.
The cost competitiveness of US LNG exporters will largely be
determined by the price for which they can purchase domestic gas for
export. The US Energy Information Administration forecasts the Henry
Hub spot price — the reference price for US domestic gas — to rise
from an average US$2.50 per MMbtu in 2016 (A$3.20 a GJ) to US$3.40
per MMbtu in 2018 (A$4.30 a GJ) because of growing domestic
consumption and new export capabilities.
0
10
20
30
40
50
2009 2011 2013 2015 2017 2019
Million tonnes
Australia North America South East Asia Middle East Other
0
20
40
60
80
100
Australia NorthAmerica
MiddleEast
Africa South EastAsia
Rest of theworld
Million tonnes
Existing capacity 2016 Additional capacity by 2019
Resources and Energy Quarterly June 2017 55
Figure 7.9: Value of Australian LNG exports
Figure 7.10: Annual growth in Australia’s LNG export values,
contributions from prices and export volumes
Notes: Office of the Chief Economist estimates for historical export values by country
based on Argus Media data.
Source: Argus Media (2017); Department of Industry, Innovation and Science (2017)
Notes: Log change is used to approximate percentage change. The approximation
becomes less accurate the larger the percentage change.
Source: ABS (2017); Department of Industry, Innovation and Science (2017)
Qatar’s exports are forecast to remain largely unchanged
Qatar is the world’s largest LNG exporter. In 2016, Qatar exported an
estimated 77 million tonnes of LNG — the equal highest level since
2011. Qatar’s LNG projects have the lowest short-run marginal
production costs in the world, and Qatar’s exports are forecast to be
broadly stable over the outlook period at 74 million tonnes.
To date, Qatar’s LNG exports have been largely unaffected by recent
tensions with its Middle Eastern neighbours. However, Qatar now
reportedly faces higher shipping costs, as a result of the closure of the
Port of Fujairah in the United Arab Emirates to Qatari LNG tankers — a
key refuelling stop for vessels transiting through the Persian Gulf.
Qatar’s decision in April to lift the moratorium on new gas development
at its North Field, and potentially expand the capacity of its LNG trains, is
not expected to affect its LNG exports within the two-year outlook period.
Australia
LNG export earnings to increase, driven by higher export volumes
The value of Australia’s LNG exports is forecast to increase from an
estimated $23 billion in 2016–17 to $37 billion in 2018–19 — an average
annual increase of 28 per cent. Rising export values will be underpinned
by higher export volumes and, to a lesser extent, higher prices.
Australia’s LNG export volumes are forecast to reach 74 million tonnes
in 2018–19, up from an estimated 51 million tonnes in 2016–17. Higher
export volumes will be underpinned by the ramp-up of production at
Gorgon, as well as the completion of the three remaining LNG projects
under construction — Wheatstone, Icthys and Prelude. These three
projects will add around 21 million tonnes to Australia’s LNG export
capacity, bringing total nameplate capacity to around 88 million tonnes.
The average price of Australian LNG (FOB) is forecast to increase by 12
per cent in 2017–18, before stabilising in 2018–19.
The forecast for export values has been revised down
Estimated export values for 2016–17 are around A$1 billion lower than
forecast in the March Resources and Energy Quarterly because of lower
than expected exports over the first half of 2017. Production at
Woodside’s North West Shelf and Pluto projects were affected by
0
2
4
6
8
10
Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Jun-19
2016–17 A
$ b
illion
Japan Korea China Other
-60
-40
-20
0
20
40
60
2008–09 2010–11 2012–13 2014–15 2016–17 2018–19P
er
cent
Volumes Prices Values
Resources and Energy Quarterly June 2017 56
Figure 7.11: Australia’s LNG exports and capacity utilisation
Notes: Utilisation shown as a share of nameplate capacity. Office of the Chief Economist
estimates are used when LNG trains are ramping up to full capacity.
Source: ABS (2017); Department of Industry, Innovation and Science (2017)
Note: nameplate capacity.
Source: Department of Industry, Innovation and Science (2017)
adverse weather conditions in the March quarter. Operations were also
suspended at the North West Shelf between 15 and 28 April, following
an electrical fault. Train 1 at the Gorgon project was stopped in the
second half of May, due to the failure of a flow measurement device.
Downward revisions to export values in 2017–18 and 2018–19 (totalling
A$5.6 billion) reflect a more subdued outlook for oil prices, and a slower
ramp-up in exports than forecast in the March Resources and Energy
Quarterly. LNG production at Inpex’s Icthys project — which was
originally scheduled to begin in late 2017 — has been delayed until
March 2018. More minor revisions have been made to the forecasts for
a number of other LNG projects.
A number of uncertainties remain
Oil prices remain a key sensitivity to the outlook for LNG export
earnings. If the JCC oil price forecast was reduced by US$5 a barrel,
projected LNG export earnings would be $2.7 billion lower in 2018–19 at
$34.3 billion.
Some uncertainty also surrounds the outlook for export volumes.
Competition in global LNG markets is set to intensify over the next few
years, and the average capacity utilisation of Australian LNG plants is
expected to edge down.
The extent of the decline will depend on the cost competitiveness of
Australian LNG projects and the amount of flexibility in Australian LNG
contracts. LNG contracts often include clauses which allow buyers to
reduce purchases to minimum ‘take-or-pay’ levels. It is possible buyers
may utilise these provisions if oil-linked contract prices remain higher
than spot prices, or if they become over-contracted for LNG.
The Australian Domestic Gas Security Mechanism (ADGSM) has the
potential to affect future LNG exports. The ADGSM will allow the
Australian Government to restrict LNG exports if a gas supply shortfall is
projected in the domestic market. LNG exporters that are net
contributors to the domestic market will not be affected, but those that
are not net contributions may have their exports capped.
On current projections, Australia will overtake Qatar as the world’s
largest LNG exporter in 2019, when Australian LNG exports reach 76
million tonnes. However, this is not a certainty: the difference between
the projected exports of the two countries is narrow, and downside risks
to the outlook for the Australian LNG exports remain.
Figure 7.12: Australian LNG export capacity
60
70
80
90
100
0
20
40
60
80
2009–10 2012–13 2015–16 2018–19
Per
cent
Million tonnes
Export volumes Capacity utilisation (rhs)
0
20
40
60
80
100
2008–09 2010–11 2012–13 2014–15 2016–17 2018–19M
illion tonnes
Existing New capacity additions
Resources and Energy Quarterly June 2017 57
Annual percentage change
World Unit 2016 2017 f 2018 f 2019 f 2017 f 2018 f 2019 f
JCC oil price a
– nominal US$/bbl 41.9 53.7 57.6 61.1 28.3 7.3 6.0
– real h US$/bbl 42.8 53.7 56.3 58.3 25.4 4.8 3.6
Gas production t Bcm 3 608.9 3 650.0 3 737.3 3 780.6 1.1 2.4 1.2
Gas consumption t Bcm 3 607.8 3 650.8 3 740.2 3 784.7 1.2 2.4 1.2
LNG trade d Mt 258.0 278.8 297.9 319.9 8.0 6.9 7.4
Notes: a JCC stands for Japan Customs-cleared Crude b Production includes both sales gas and gas used in the production process (i.e. plant use) as well as ethane. Historical gas production
data was revised in the June quarter 2017 to align with Australian Petroleum Statistics published by the Department of Environment and Energy. c Gas production from Bayu-Undan Joint
Production Development Area is not included in Australian production. Browse basin production associated with the Ichthys project is classified as Northern market. d 1 million tonnes of LNG is
equivalent to approximately 1.36 billion cubic metres of gas. e In 2016–17 Australian dollars. f forecast. g 1 MMBtu is equivalent to 1.055 GJ. h In 2017 US dollars. s estimate. t estimate for
2016.
Source: ABS (2017) International Trade in Goods and Services, Australia, Cat. No. 5368.0; Department of Industry, Innovation and Science (2017); Company reports; Nexant World Gas Model
(2017).
Table 7.1 Gas outlook
Australia
Annual percentage change
Australia Unit 2015–16 2016–17 s 2017–18 f 2018–19 f 2016–17 s 2017–18 f 2018–19 f
Production b Bcm 88.2 104.6 126.0 139.5 18.7 20.4 10.7
– Eastern market Bcm 43.4 54.2 57.1 55.1 24.9 5.3 -3.4
– Western market Bcm 43.8 49.1 67.0 74.0 11.9 36.4 10.5
– Northern market c Bcm 0.9 1.4 2.0 10.4 47.1 46.3 423.2
LNG export volume d Mt 36.9 51.5 63.8 73.8 39.7 23.9 15.7
– nominal value A$m 16,576 22,693 32,017 38,675 36.9 41.1 20.8
– real value A$m 16,866 22,693 31,343 37,046 34.6 38.1 18.2
LNG export unit value g
– nominal value A$/GJ 8.5 8.3 9.5 9.9 -2.0 13.9 4.4
– real value e A$/GJ 8.7 8.3 9.3 9.5 -3.7 11.5 2.2
– nominal value US$/MMBtu 6.6 6.6 7.4 7.9 0.8 12.5 5.8
– real value e US$/MMBtu 6.7 6.6 7.3 7.5 -1.0 10.2 3.5
Resources and Energy Quarterly June 2017 59
Figure 8.1 Recent movement in oil prices
Figure 8.2 Annual oil prices
Source: Bloomberg (2017), Brent and West Texas Intermediate spot prices
Source: Bloomberg (2017), Brent and West Texas Intermediate spot prices; Department
of Industry, Innovation and Science (2017)
Market summary
Some unusual production dynamics appeared in the global oil market
during the first half of 2017. The OPEC output agreement — aimed at
rebalancing the global oil market — was largely adhered to, while US oil
output rose. The OPEC output agreement has recently been extended
beyond 2017, in response to persist high global stocks levels.
The value of Australia’s crude oil and condensate exports is forecast to
rise to $6.0 billion in 2017–18 and to $8.1 billion in 2018–19. Forecast
earnings have been revised down by $2.2 billion in 2017–18 and $0.7
billion in 2018–19 from the March Resources and Energy Quarterly due
to project delays and a more subdued outlook for oil prices.
Prices
In the first six months of 2017, Brent crude oil spot prices averaged
US$53 a barrel, while West Texas Intermediate (WTI) spot prices
averaged US$50 a barrel. These average prices were around 40 per
cent higher than in the corresponding period last year, when the market
was characterised by excess global supply.
Despite price gains in the first four months of 2017, rising US oil output
and speculation around persistent global over-supply prompted a drop in
prices at the start of the June quarter, bringing Brent spot prices under
US$50 a barrel for the first time since November 2016. A slow
drawdown of global stocks has had a dampening effect on prices —
OECD stocks were 292 million barrels above the five-year average in
April.
Oil price forecasts for 2017 have been revised down to US$54 a barrel
for Brent and US$52 a barrel for WTI, as expectations about US
production continue to rise. These forecasts are contingent on OPEC
agreement production restrictions being adhered to in the second half of
the year.
Continued OPEC pact to support modest price growth
In the coming quarters, as the market tightens — with global supply
coming down below global demand — stock levels are expected to go
down, particularly as seasonal refinery activity picks up. Average spot
prices for Brent crude are forecast to be US$58 a barrel in 2018 and
US$61 a barrel in 2019. WTI crude is forecast to average US$55 a
barrel in 2018 and US$57 a barrel in 2019.
0
20
40
60
80
100
120
140
2009 2011 2013 2015 2017 20192017 U
S$ a
barr
el
Brent West Texas Intermediate
0
10
20
30
40
50
60
70
Sep-2016 Dec-2016 Mar-2017 Jun-2017
US
$ a
barr
el
Brent West Texas Intermediate
OPEC production
target increased
OPEC Agreement signed Agreement extended to
March 2018
Resources and Energy Quarterly June 2017 60
Figure 8.3 Annual growth in world oil consumption
Figure 8.4 OECD Industry Petroleum Stocks
Source: International Energy Agency Monthly Oil Data Service (2017); Department of
Industry, Innovation and Science (2017)
Source: International Energy Agency Monthly Oil Data Service (2017); Department of
Industry, Innovation and Science (2017)
World oil consumption
Oil consumption in the first half of 2017 was lower than expected in a
number of countries, including in the major consuming countries of
China, India and the US. Global consumption is expected to recover
over the remainder of the year, to average 97.8 million barrels a day —
an annual increase of 1.3 per cent in 2017. This rate of consumption
growth will be the lowest since 2011, as a number of advanced
economies — including the US and Japan — exhibit stagnant or falling
consumption. Non-OECD consumption growth, which is forecast to
average 2.8 per cent in 2018 and 2019, is expected to outweigh the
impact of slowing consumption growth in OECD countries.
Strong consumption growth in China and India
China’s consumption of crude oil is forecast to increase at an average
annual rate of 2.7 per cent over the outlook period, driven by firm
economic activity and an expanding petrochemical sector. Tightening
controls on pollution may have a dampening effect on consumption
growth in the longer term.
Oil consumption in India is expected to increase substantially over the
outlook period, albeit from a low base. The impacts of India’s
demonetisation of high value currency notes in late 2016 lowered
consumption growth in early 2017, which — at an average rate of 4.3
million barrels a day — was almost 2 per cent lower than in the same
period last year. There is significant capacity to increase vehicle
ownership per capita, and consumption growth is forecast to be around
6 per cent in 2018 and 2019.
World oil production
World oil production for the first five months of the year expanded by 0.2
per cent on an annual basis, as some of the world’s largest producers
changed their production strategy. Over this period, output from OPEC
was down by 0.3 per cent, or 133,000 barrels a day, as strong
compliance continued under the 2017 OPEC Production Agreement.
Production from Brazil and Canada also showed strong annual growth,
production for the first five months of the year was 12 per cent and 7.7
per cent higher than the same period in 2016.
-1
1
2
3
2014 2015 2016 2017 2018 2019
Million b
arr
els
a d
ay
Non-OECD OECD Total
2017
2.3
2.5
2.7
2.9
3.1
Mar Jun Sep DecM
illion b
arr
els
Range 2012-2016 Average 2012-2016 2015 2016
Resources and Energy Quarterly June 2017 61
Figure 8.5 OPEC production and 2017 Production Agreement
Figure 8.6 Production of select countries under 2017 Agreement
Source: International Energy Agency Oil Market Report (June 2017); Department of
Industry, Innovation and Science (2017)
Source: International Energy Agency Oil Market Report (June 2017); Department of
Industry, Innovation and Science (2017)
World production is forecast to increase marginally in 2017, averaging
97.2 million barrels a day, as lower OPEC production is expected to be
outweighed by higher US production and new projects in Canada and
Brazil.
The OPEC agreement is set to expire at the end of the March quarter
2018, and higher output is expected in the second half of 2018 and in
2019. World production is forecast to increase to 99.7 million barrels a
day in 2018, and to 101.1 million barrels a day in 2019.
Risks to the extended OPEC agreement
In November 2016, a historic agreement was made between OPEC and
eleven other countries to reduce 2017 production, by 1.8 million barrels
a day. This agreement aimed to reduce global oil supply and bring the oil
market into balance. In May 2017, OPEC extended the output reduction
agreement until March 2018, to increase the rate of stock level
drawdown over the next 10 months.
The strong compliance record to date — led by Saudi Arabia reducing
output by more than the committed amount — provides some indication
that compliance will continue. However, extending the timeframe of the
agreement may make long-term commitment more difficult.
Other factors made lower production targets easier to comply with in the
first half of the year, including seasonal production changes and planned
maintenance. Despite regional diplomatic tensions, Qatar has expressed
its intention to continue compliance with the OPEC agreement.
Increased production from OPEC countries excluded from the
agreement — Iran, Libya and Nigeria — pose an upside risk to the
supply outlook. Iran’s production in the first five months of the year was
13 per cent higher than in 2016, at 4.5 million barrels a day. This partly
reflects the lifting of sanctions just over a year ago.
If agreeing OPEC countries continue with production restrictions, 2017
OPEC crude oil and liquid production is expected to be 38.8 million
barrels a day, increasing to 39.7 million barrels a day in 2018. Looking
towards the end of the outlook period, it is unclear how OPEC will
transition away from the production restrictions, and whether full
production will return to the market in a staged or uncontrolled manner.
28
29
30
31
32
33
34
Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17
Million b
arr
els
a d
ay
OPEC production OPEC 2017 production target
0
2
4
6
8
10
12
Russia Saudi Arabia Iraq Kuwait United ArabEmirates
Million b
arr
els
per
day
Average production Jan - May 2017 Target
Resources and Energy Quarterly June 2017 62
Figure 8.7 US shale oil production and rig count
Source: International Energy Agency Oil Market Report (June 2017); Department of Industry, Innovation and Science (2017)
Source: US Energy Information Administration (2017), Drilling Productivity Report
Figure 8.8 Annual change in OPEC and US petroleum production
Higher US production lowers prices and negates OPEC agreement
Booming US oil output — both shale and conventional oil — has been
the biggest surprise in the oil market in 2017. US oil production in the
first five months of the year was 1 per cent higher than in the same
period last year. US exports have also lifted; in February, for the first
time, the US was the largest exporter to China.
Forecasts for US production have been continually revised up, as the
US rig count — an indicator of output potential — has increased on a
weekly basis, and is now at its highest point in more than two years. US
production is forecast to expand by 4.8 per cent in 2017 and 7.7 per cent
in 2018. Significant decreases in well-head production costs, as well as
technology and efficiency improvements, have allowed average shale
basin operating costs to drop to $40-50 a barrel.
0
200
400
600
800
1,000
1,200
1,400
0
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5
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7
May-09 May-11 May-13 May-15 May-17
Num
ber
of ri
gs
Million b
arr
els
a d
ay
Production Rig count (right axis)
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Thousand b
arr
els
per
day
OPEC United States
Resources and Energy Quarterly June 2017 63
Figure 8.9 Australia’s petroleum production
Figure 8.10 Condensate capacity of development LNG projects
Source: Australian Petroleum Statistics (2017); Department of Industry, Innovation and
Science (2017)
Source: Department of Industry, Innovation and Science (2017), Company Reports
Australian production and trade
Australia’s crude and condensate production dropped in the first four
months of 2017, averaging 343,000 barrels a day — 12 per cent lower
than the same period in 2016. Severe weather-related shut-downs
contributed to lower production from the North West Shelf and Pluto
production fields, while industrial action resulted in lower Gippsland
Basin production.
In line with lower quarterly production, exports in the first four months of
the year averaged 188,000 barrels a day — 17 per cent lower than the
same period last year. Higher oil prices facilitated an 11 per cent annual
increase in export earnings for the first four months of the year, reaching
$1.6 billion.
Due to sharp decreases in production at the start of 2017, the annual
production forecast for 2016–17 has been revised down. For 2016–17,
production is forecast to decrease by 10 per cent to average 287,000
barrels a day.
Production growth expected from new LNG projects
Over the outlook period, higher condensate production is expected to
drive production increases. Condensate can occur in natural gas
reserves and be simultaneously extracted. Total crude and condensate
production is expected to increase in 2017–18, to average 294,000
barrels a day. Production forecasts have been revised down, as LNG
development projects timelines have changed— including for the Icthys
project, with condensate production capacity of 100,000 barrels day.
As the Prelude and Icthys projects commence in 2018, 2018–19
production is forecast to average 374,000 barrels a day. As production
reaches capacity levels in these projects, their output is expected to
account for more than 40 per cent of total condensate production.
0
100
200
300
400
500
600
700
2002–03 2005–06 2008–09 2011–12 2014–15 2017–18
Thousand b
arr
els
a d
ay
Crude oil Condensate LPG
2016-17 average
scheduled 2018
scheduled 2018 scheduled
2017
0
50
100
150
200
250
300
Currentproduction
Icthys Prelude Gorgon LNG Wheatstone
Thousand b
arr
els
a d
ay
operating
2017
Resources and Energy Quarterly June 2017 64
Figure 8:11 Australia’s exports of crude oil and condensate
Figure 8:12 Australia’s production and imports of refined products
Source: ABS (2017) International Trade in Goods and Services, 5368.0; Department of
Industry, Innovation and Science (2017)
Source: Department of Environment and Energy (2017) Australian Petroleum Statistics,
Table 2, Department of Industry, Innovation and Science (2017)
Higher export earnings supported by positive price outlook
Australia’s exports of crude oil and condensate are estimated to have
decreased by almost 5 per cent in 2016–17, to an average rate of
228,000 barrels per day, due to production outages in the first half of
2017. Despite lower volumes, export earnings are estimated to have
increased in this period, driven by higher oil prices. On an annual basis,
2016–17 export earnings are forecast to increase by 1 per cent to $5.6
billion.
Export volumes are expected to increase over the outlook period,
reaching 229,000 and 292,000 barrels per day in 2017–18 and 2018–19,
respectively. In line with higher forecast production — and provided oil
prices strengthen as expected — substantially higher export earnings
are anticipated over the outlook period. 2017–18 export earnings are
forecast to increase by 7 per cent to $6.0 billion. In 2018–19, export
earnings are expected to increase substantially, reaching $8.1 billion.
Australia’s refinery activity
In the March quarter, Australia’s production of refined products
decreased for a third consecutive quarter. Despite higher refinery output
in April, annual production for 2016–17 is estimated to decrease by 5 per
cent, to average 424,000 barrels a day. Production is forecast to
decrease at a slower rate over the outlook period. Domestic refining
capacity faces significant challenges, including cost competition from
newer, larger facilities in Asia, particularly in China.
As a result of lower domestic production, a 5 per cent increase in refined
product imports is estimated to have occurred in 2016–17, with imports
reaching an average rate of 621,000 barrels a day. Provided domestic
production stays at current levels, imports of refined products are
forecast to increase slightly over the outlook period, in line with demand
growth.
0
3
6
9
12
15
0
100
200
300
400
500
2002–03 2005–06 2008–09 2011–12 2014–15 2017–18
A$ b
illion
Thousand b
arr
els
a d
ay
Volume Value (right axis)
0
100
200
300
400
500
600
700
800
2000–01 2004–05 2008–09 2012–13 2016–17T
housand b
arr
els
per
day
Refinery production Imports of refined products
Resources and Energy Quarterly June 2017 65
Annual percentage change
World Unit 2016 2017 f 2018 f 2019 f 2017 2018 2019
Production a mb/d 97.0 97.2 99.7 101.1 0.2 2.6 1.4
Consumption a mb/d 96.6 97.8 99.3 100.6 1.3 1.5 1.3
WTI crude oil price
Nominal US$/bbl 43.2 51.9 56.2 59.6 20.0 8.2 6.2
Real b US$/bbl 44.2 51.9 54.8 56.9 17.3 5.7 3.8
Brent crude oil price
Nominal b US/$bbl 44.1 53.5 57.6 61.1 21.2 7.8 6.0
Real c US$/bbl 44.1 53.5 56.3 58.3 18.5 5.3 3.6
Table 8.1 Oil outlook
Annual percentage change
Australia Unit 2015–16 2016–17 s 2017–2018 f 2018–19 f 2016–17 2017–18 2018–19
Crude and condensate
Production a kb/d 317 287 294 374 –9.5 2.6 27.1
Export volume a kb/d 239 228 229 292 –4.7 0.3 27.8
Nominal value A$m 5,444 5,601 6,144 8,505 2.9 9.7 38.4
Real value g A$m 5,540 5,601 6,015 8,147 1.1 7.4 35.4
Imports a kb/d 342 342 341 324 0.0 –0.2 –5.0
LPG
Production ac kb/d 53 53 51 66 0.1 –3.5 28.7
Export volume a kb/d 34 38 35 45 11.0 –8.8 28.5
Refined products
Refinery production a kb/d 445 424 419 415 –4.6 –1.3 –1.1
Export volume ad kb/d 10 18 12 9 73.0 –32.6 –24.1
Imports a kb/d 593 621 611 643 4.8 –1.6 5.2
Consumption ae kb/d 950 966 965 982 1.7 –0.1 1.8
Notes: a Number of days in a year is assumed to be exactly 365; b In 2017 calendar year dollars; c Primary products sold as LPG; d Excludes LPG; e Domestic sales of marketable products;
f Forecast; g In 2016–17 financial year Australian dollars; s Estimate; z Projection. A barrel of oil equals 158.987 litres
Source: ABS (2017) International Trade Statistics Service, cat. no.5464.0 ; Energy Information Administration (2017); Department of Industry, Innovation and Science (2017)
Resources and Energy Quarterly June 2017 67
Figure 9.1: Uranium prices, monthly
Figure 9.2: Outlook, quarterly uranium spot price
Source: Cameco Corporation (2017) Uranium Spot and Long Term Prices.
Source: Cameco Corporation (2017) Uranium Spot Price; Ux Consulting (2017) Uranium
Market Outlook.
Market summary
The global uranium market continues to experience low prices and
significant oversupply, although there are tentative signs of some
turnaround in conditions. Production cuts are likely to restrain an
inventory build over the next two years, while on the demand side,
significant new nuclear power generation capacity is being constructed
in China and India.
Australian export volumes are estimated to have edged up to 7,724
tonnes of U308 over 2016–17. However, rising production at the
Olympic Dam and Four Mile mines is forecast to support a rise in export
volumes to 8,450 tonnes by 2018–19. Export values are expected to fall
to $947 million in 2016–17, before recovering to $972 million in 2017–18
and $1 billion in 2018–19, as prices and production rise.
Prices
Uranium prices remain historically low
Uranium prices have been constrained by uncertainty and weak demand
for more than five years. Although the Fukushima nuclear reactor
meltdown in Japan has played a significant role in suppressing demand
in recent years, there are also longer-term factors at work. Gradual
improvements in reactor efficiency and technology are restraining global
uranium usage, to the potential detriment of suppliers.
Uranium prices averaged $US25.64 a pound over 2016, reaching a
historical low level of $US18 a pound last November. Spot prices remain
low and inventories substantial, as a result of a surge of selling. Uranium
markets have been destabilised as a range of generalist investment
funds have exited. Ongoing political difficulties have also curbed the
growth of the nuclear power industry in several countries.
In the first half of 2017 prices lifted and then stabilised at an average
level of around $US23 a tonne for four months, but lost ground again in
May 2017, falling to $US19.60 a pound.
0
20
40
60
80
100
120
140
160
2006 2008 2010 2012 2014 2016
US
$ a
pound
Spot Long term
0
20
40
60
80
100
120
140
1999 2002 2005 2008 2011 2014 2017
US
$ a
pound
Resources and Energy Quarterly June 2017 68
Figure 9.3: World nuclear power generation
Figure 9.4: New nuclear capacity
Source: International Energy Agency (2017); World Nuclear Association (2017), DIIS
estimates
Source: World Nuclear Association (2017).
Prices are expected to rise moderately in the medium term. World
uranium extraction has declined, most notably in Kazakhstan, where
Kazatomprom — a major supplier — announced substantial production
cuts of around 5 million pounds in 2017. At the same time, new capacity
in Eastern Europe and Asia is coming online, more than offsetting cuts
and suspensions in Western Europe. The combined effect should see
prices lift gradually, from an average of around $US22.90 a pound in
2017, to $US25.20 a pound in 2018, and $US29.00 a pound in 2019.
Significant price growth is not expected in the short-term, as progress in
re-opening reactors remains slow in Japan, and global inventories have
held up better than expected.
Large uranium producers typically sell most of their output through long
term contracts, rather than on the spot market. The Ux Consulting long
term indicator contract price fell to an average $US39.00 a pound in
2016, and is estimated to average $US32.95 a pound in 2017. This price
is expected to largely follow trends in the spot market; long term
contracts typically vary across producers, however, due to differences in
contract lengths, volumes and terms, as well as to market conditions at
the time of signing. Australia’s average export returns are generally
much lower than the world indicator contract price.
World uranium consumption
Emerging Asia is still the primary driver of nuclear power growth, though
there are tentative signs of growth in Eastern Europe
In 2016, world uranium consumption increased by 1.1 per cent to 83,400
tonnes, with a further rise to 88,300 tonnes expected in 2017.
Solid aggregate growth masks divergent trends in individual countries. In
Japan, the pace of reactor restarts remains slow: Kansai Electric
Power’s Takahama No. 3 reactor re-commenced production in June
2017, meaning a total of five reactors (from 42) have returned to
operation. Three more reactors have received approval from Japan’s
Nuclear Regulation Authority, and thus are expected to come online by
the end of 2017. However, a large number of reactors will remain
dormant for the foreseeable future.
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2000 2003 2006 2009 2012 2015 2018
Terr
aw
att
hours
OECD Non-OECD
0
10
20
30
40
50
60
70
China OtherAsia
EasternEurope
NorthAmerica
WesternEurope
Africa –Middle East
SouthAmerica
Gig
aw
att
s e
lectr
ic
Under Construction Planned
Resources and Energy Quarterly June 2017 69
Figure 9.5: World uranium consumption (U3O8)
Figure 9.6: World uranium production (U3O8)
Source: International Energy Agency (2017); World Nuclear Association (2017).
Source: Nuclear Energy Agency (2016); Ux Consulting (2016) Uranium Market Outlook;
World Nuclear Association (2017).
Nuclear power generation in China continues to grow strongly. At the
end of April, China was operating 35 nuclear power plants, with another
21 under construction and a further 36 due to commence construction by
2020. Although reactor numbers are rising, greater efficiency in new
designs (such as the Evolutionary Power Reactor system in Guandong)
will constrain uranium consumption growth.
India has formalised previously vague proposals to expand its capacity,
publishing proposals for a further 10 new reactors with a combined
capacity (7000MW) that exceeds the entire capacity of the 22 reactors
currently in operation. The Indian Government is now aiming to derive a
quarter of India’s electricity generation from nuclear sources by 2050.
Although there is significant uncertainty in parts of the US energy
market, conditions for nuclear plants are relatively stable, and little direct
impact is expected following the Trump Administration’s announcement
in March of a rollback in the Clean Power Plan. The US still has 99
reactors in operation, and a further four (with a combined capacity of
around 4,500 megawatts) under development.
In April, the Polish state-owned energy group Polska Grupa
Energetyczna announced plans to build Poland’s first nuclear plant, with
“localisation and environmental studies” now underway in Pomerania.
In late April, the UK opened a fusion reactor, and officially achieved first
plasma. The reactor produces fusion by attaining a record-breaking
plasma temperature of 100 million degrees — seven times hotter than
the centre of the Sun. Reactor technology of this kind is highly efficient,
and wider adoption of it will reduce average uranium use per reactor.
The South Korean Government is shifting in the opposite direction, with
the election in May of a new President who has committed to closing
one reactor (Wolsong-1) and cancelling the construction of two other
reactors — which had been scheduled to open in 2021 and 2022. In
May, a referendum in Switzerland approved revisions to the Energy Act,
which bans the construction of new nuclear plants.
Globally, uranium requirements are forecast to edge down to 87,800
tonnes in 2018, as few new reactors are due to come online. Uranium
use is then expected to grow marginally in 2019, with global demand
reaching 88,100 tonnes. Higher demand in Asia is expected to offset
declines in Europe.
0
10
20
30
40
50
60
70
80
90
100
2000 2003 2006 2009 2012 2015 2018
Thousand tonnes0
5
10
15
20
25
30
Kazakhstan Africa Canada Other AustraliaT
housand tonnes
2005 2010 2015 2020
Resources and Energy Quarterly June 2017 70
Figure 9.7: Uranium supply–demand balance (U3O8)
Figure 9.8: Australia’s uranium exploration
Source: International Atomic Energy Agency (IAEA); Ux Consulting (2017); World Nuclear
Association (2017).
Source: ABS (2017) Mineral and Petroleum Exploration, cat. no. 8412.0; Cameco
Corporation (2017) Uranium Spot Price.
World uranium production
Mine production is set to increase steadily
In 2017, world mine production is forecast to increase by 1.7 per cent to
74,000 tonnes, as output rises in Canada and Russia.
Production facilities in other parts of the world are curbing output, as low
prices make extraction unprofitable. Kazakh production, in particular, is
expected to decline significantly in 2017.
World uranium supply is increasingly being drawn from uranium
inventories held by nuclear utilities and secondary market supplies. Ux
Consulting has estimated that there are sufficient inventories held by
nuclear utilities to cover forward demand for around 5 years in Japan, 30
months in the United States and Europe, and around 7 years in China.
With inventories high, it is expected that uranium producers will focus on
cutting costs rather than increasing production. High-cost mines are
likely to scale back or cease production, and new projects will remain on
hold until price increases improve their commercial viability.
A gradual erosion of inventories and a slow recovery in prices should
see production edge back towards primary sources over the next year or
so , with mine production expected to lift by 3,900 tonnes to 77,900
tonnes by 2018. This will be underpinned by continued increases in
production at CGN/Swakop Uranium’s Husab mine in Namibia,
Peninsula Energy’s Lance mine in the United States, and the Cameco
Cigar Lake mine in Canada.
Australia’s exploration, production and exports
Australia’s uranium exploration expenditure continues to decline
Exploration for uranium continues to decline, with quarterly expenditure
falling from $6.3 million in the December quarter 2016 to $5.1 million in
the March quarter 2017. Exploration now sits well below the 2010 peak,
when spending over the year reached $190 million.
Western Australia announced a ban on uranium mining leases in June.
While four existing projects (Cameco’s Kintyre and Yeelirrie projects,
Vimy Resources’ Mulga Rock project and Toro Energy’s Wiluna project)
are exempt, future leases will not be issued, effectively terminating
exploration in Western Australia.
0
10
20
30
40
50
60
70
0
10
20
30
40
50
60
70
Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16
US
$ a
pound
A$ m
illio
n
Exploration expenditure Uranium price (rhs)
0
20
40
60
80
100
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Thousand tonnes
Consumption Primary Production
Resources and Energy Quarterly June 2017 71
Figure 9.9: Australia’s uranium production
Figure 9.10: Australia’s uranium exports
Source: BHP Billiton (2017) Operational Review; Department of Industry, Innovation and
Science (2017); Energy Resources of Australia (2017) ASX Announcement – Operations
Review; Company media announcements (2017).
Source: Department of Industry, Innovation and Science (2017).
Australia’s production is set to increase from its low point in 2016
Australia’s uranium production is forecast to be roughly steady in
2016–17, at 7,724 tonnes. Stronger production at the BHP Olympic Dam
mine, and a ramp-up of production in Quasar Resources’ Four Mile
Mine, are expected to drive a lift in production to 8,073 tonnes in 2017–
18 and to 8,450 tonnes in 2018–19.
In late April, Vimy Resources announced that the Mulga Rock mine in
Western Australia is likely to have a larger metal deposit than earlier
modelling had suggested, which may expand the yield in future years.
However, growth from other sources is likely to be constrained by the
recently announced ban on further mining leases in Western Australia.
Australian producers may face tough conditions during 2017 and 2018,
as long-term supply contracts expire. It is likely that a greater share of
global demand will be met from the spot market in 2017, as buyers
capitalise on historically low prices.
Nuclear power growth in China to drive Australia’s uranium exports
It is estimated that Australia exported 7,724 tonnes of U308 in
2016–17. Australia does not use nuclear power, and robust demand in
regional markets is expected to draw all of Australia’s uranium
production into export markets over the outlook period.
Prices remained below production costs throughout 2016–17, creating
difficult conditions for producers. Export values are estimated to have
been roughly steady at around $947 million in 2016–17 (in real terms).
However, higher prices should encourage production to shift up slightly,
increasing export values to $972 million in 2017–18 and $1,003 million in
2018–19.
Although the outlook for exports remains tight in the short term, there is
still strong potential for demand growth in several key regions, including
North America, Western Europe, and China. There are also hopes of
opening up new markets in India — with Australian Prime Minister
Turnbull announcing an intention to resume uranium exports to India “as
soon as possible” during a state visit in April.
0
2
4
6
8
10
12
14
1999-00 2002-03 2005-06 2008-09 2011-12 2014-15 2017-18
Thousand tonnes
0
200
400
600
800
1,000
1,200
1,400
0
2
4
6
8
10
12
14
1999-00 2003-04 2007-08 2011-12 2015-16
2016-1
7 A
$ m
illio
n
Thousand tonnes
Volume Value (rhs)
Resources and Energy Quarterly June 2017 72
Annual percentage change
World Unit 2016 2017 f 2018 f 2019 f 2017 f 2018 f 2019 f
Production kt 73.1 74.4 77.9 80.1 1.7 4.7 2.8
Africa b kt 9.5 11.4 13.1 14.9 20.1 14.7 13.9
Canada kt 15.9 16.2 16.7 16.7 2.1 2.8 0.0
Kazakhstan kt 28.1 26.7 27.4 27.4 -5.0 2.7 0.0
Russia kt 3.6 4.0 4.2 4.3 9.4 5.7 2.7
Consumption kt 83.4 88.3 87.8 88.1 5.9 -0.6 0.4
China kt 13.8 17.1 17.5 18.7 24.0 2.3 6.7
European Union 28 kt 22.2 22.4 24.3 22.2 1.0 8.7 -8.9
Japan kt 0.5 1.2 1.7 2.0 162.9 42.0 17.9
Russia kt 6.1 6.6 6.9 7.0 7.0 4.6 2.5
United States kt 23.0 22.5 22.1 22.5 -1.9 -1.9 1.6
Price
– nominal US$/lb 25.6 22.9 25.2 29.0 -10.8 10.0 15.2
Notes: b Includes Niger, Namibia, South Africa, Malawi and Zambia; c In 2017 US dollars; d in 2016-17 Australian dollars; f forecast.
Source: Australian Department of Industry, Innovation and Science (2017); Cameco Corporation (2017); Ux Consulting (2017) Uranium Market Outlook.
Table 9.1 Uranium outlook
Annual percentage change
Australia Unit 2015–16 2016–17 s 2017–18 f 2018–19 f 2016–17 s 2017–18 f 2018–19 f
Production t 7,717 7,724 8,073 8,450 0.1 4.5 4.7
Export volume t 7,889 7,724 8,073 8,450 -2.1 4.5 4.7
– nominal value A$m 963 947 993 1,047 -1.6 4.9 5.4
– real value d A$m 979 947 972 1,003 -3.3 2.7 3.2
Average price A$/kg 122.0 122.6 123.0 123.9 0.5 0.3 0.7
– real d A$/kg 124.2 122.6 120.4 118.7 -1.3 -1.8 -1.4
Resources and Energy Quarterly June 2017 74
Figure 10.1: Gold prices and the US dollar
Figure 10.2: Gold prices and US Treasury Yields
Source: LBMA (2017) Gold Price PM; Thompson Reuters (2017) US dollar index
Notes: The US dollar index is a weighted average of the foreign exchange value of the
US dollar against the currencies of a broad group of major US trading partners
Source: LBMA (2017) Gold Price PM; Thompson Reuters (2017) US Treasury Income
Protected Securities 10 year yield
Market summary
The gold price is forecast to average US$1,254 a troy ounce in 2017 —
revised higher from the March Resources and Energy Quarterly, due to
larger than expected safe-haven demand and a weaker than expected
US dollar over much of 2017. Australian dollar gold prices have
continued to rise in 2017, favouring local producers. Australian
production was lower than expected in the March quarter, as heavy
rainfall interrupted several mine operations. However, forecasts for
export volumes remain mostly unchanged from the March 2017
Resources and Energy Quarterly, while export values have been revised
higher, due to higher than expected world gold prices. Australia’s
exports of gold are forecast to stay relatively unchanged at 334 tonnes in
2018–19, worth over $17 billion.
Prices
Gold prices rose steadily in first half of 2017
The London Bullion Market Association (LBMA) gold price increased by
9.1 per cent between January and June this year, to average US$1,238
a troy ounce. The rise in gold prices was supported by a weaker than
expected US dollar, low real US treasury yields, and geo-political
concerns.
Several events over the first half of 2017 have been supportive of gold
as a safe haven asset. US and Russian relations came under pressure
in late March, due to greater US involvement in the Syrian conflict. Gold
prices rallied in late March, reaching a year-to-date peak of $1,290 per
ounce in mid-April. Further uncertainty was caused by the French
Presidential election, as well as by heightened tensions on the Korean
peninsula.
Investor demand was flat in the June quarter, as political concerns were
offset by anticipation of tighter monetary policy by the US Federal
Reserve — which raised the target range for the Fed Funds rate by 25
basis points up to 1–1.25 per cent in June. US official interest rates are
expected to rise further this year, which will improve the yield on US
securities and tend to put downward pressure on gold prices. When real
yields rise, investors prefer to hold US Treasuries — which offer a higher
near default-free risk return— and the opportunity cost of holding gold
rises.
116
120
124
128
1321,000
1,100
1,200
1,300
1,400
Jun-16 Sep-16 Dec-16 Mar-17 Jun-17
Index
US
$ a
tro
y o
unce
Gold Price US dollar index (rhs inverted)
-30
0
30
60
901,000
1,100
1,200
1,300
1,400
Jun-16 Sep-16 Dec-16 Mar-17 Jun-17
Yie
ld
US
$ a
tro
y o
unce
Gold Price US TIPS 10 Year (rhs inverted)
Resources and Energy Quarterly June 2017 75
Figure 10.3: Gold jewellery consumption in India and China
Source: Thompson Reuters (2017) quarterly jewellery consumption
Gold prices have been higher than forecast in the March Resources and
Energy Quarterly. The average gold price in 2017 has been revised
higher, to account for a weaker than expected US dollar and ongoing
political concerns; gold is forecast to average US$1,254 a troy ounce.
The gold price is forecast to decrease by 3.9 per cent in 2018 to average
US$1,205 per troy ounce, as higher real bond yields and a forecast
appreciation in the US dollar weigh on gold prices.
World consumption
Global gold consumption declined by 18 per cent year-on-year in the
March quarter, falling from a historically high March quarter 2016. The
decline was due to lower central bank purchases and investor demand.
World consumption is forecast to increase by 1.8 per cent in 2018, to
2,484 tonnes. The consumption figure is lower than forecast in the
March Resources and Energy Quarterly, due to data revisions.
Jewellery consumption improves in the March quarter
Gold jewellery consumption had a positive start to the year, and was up
by 1.6 per cent year-on-year in the March quarter. The modest rise was
led by India, where higher sales in the run up to the March wedding
season were boosted by favourable currency movements. India’s gold
industry continues to recover from the demonetisation of high-value
Indian currency notes and weak rural incomes, which led to historically
low gold sales in 2016.
Jewellery consumption — which accounts for 80 per cent of total
fabricated demand — is expected to increase over the outlook period.
However, gold sales in India will likely be restrained by the introduction
of a goods and services tax, that came into effect on 1 July. Continued
economic growth in India and China — the world’s two major jewellery
markets — will support higher discretionary spending on gold. Jewellery
consumption is forecast to increase by 3.5 per cent, in 2017.
Gold consumption in electronics increased by 3.7 per cent year-on-year
in the March quarter. The growth in electronics consumption has been
driven by wireless technology used in smartphones, as well as demand
for gold bonding wire. Gold used in electronics is forecast to increase by
2.2 per cent in 2017 to 261 tonnes.
Investor demand falls as further US rate increases remain key headwind
Investment demand increased in the March quarter, but was 34 per cent
lower year-on-year. Demand for bullion-backed Exchange Traded Funds
(ETFs) increased by 109 tonnes in March 2017 quarter. ETF holdings
are expected to decline slightly over the next two years, as US interest
rates are expected to rise to 2.0 per cent by the end of 2018, putting
downward pressure on gold prices.
Central bank demand for gold declined by 27 per cent in the year to the
March quarter. China’s central bank — one of the world’s largest
purchasers in recent times — has been noticeably absent from the
market since late last year. Russia continues to add gold to its foreign
reserves, as the relatively low Ruble provides an opportune moment to
buy from domestic producers. Central bank demand is expected to taper
off over the outlook period, as Chinese and Russian demand slows.
-100
-50
0
50
100
150
200
Mar-11 Mar-13 Mar-15 Mar-17Y
ear-
on-y
ear
per
cent change
India China
Resources and Energy Quarterly June 2017 76
Figure 10.4: Growth in world gold supply
Figure 10.5: World mine supply and real gold price
Source: Thompson Reuters (2017)
Source: Thompson Reuters (2017); Department of Industry, Innovation and Science
(2017)
World production
Mine production remains steady while recycling falls
Total gold supply decreased by 12 per cent year-on-year in the March
quarter 2017. World mine production was virtually unchanged, while
recycled supply fell by 21 per cent year-on-year. World mine production
is forecast to increase by 1.5 per cent in 2017 to 3,305 tonnes. Looking
further out, world mine production is expected to plateau over the next
three years. Maintaining the current level of world supply will depend on
new projects reaching commercial production.
In the March quarter, world mine production benefited from several new
projects in the US and Suriname, which offset a large decline of 8
tonnes from Grasberg in Indonesia. Production at Grasberg was
impacted adversely by restrictions on the export of unrefined metal.
Newmont’s Merian operations in Suriname, which commenced
production late last year, remains on track to achieve company guidance
of around 15 tonnes in 2017.
World mine supply is forecast to increase by 2.3 per cent in 2018 to
3,380 tonnes, and reach a peak of 3,414 tonnes in 2019. Several new
projects are expected to add up to 50 tonnes to world mine supply in
2017 — contributed mostly by new gold projects in Canada. Looking
further out, an additional 75 tonnes is expected to be added to world
mine supply in 2018, and a further 34 tonnes in 2019. Much of the
expected additional supply comes from new projects, with only a small
number of expansion projects in the pipeline.
Lower start to the year for recycled supply
World recycled supply declined by 21 per cent year-on-year in the first
quarter of 2017 to 283 tonnes. The decline is largely due to the
exceptional start to 2016, when rising gold prices encouraged greater
recycled supply. Recycled supply is expected to contribute 1,243 tonnes
to world supply in 2017, and to increase by 1.5 per cent to 1,266 tonnes
in 2018.
-60
-40
-20
0
20
40
60
Mar-09 Mar-11 Mar-13 Mar-15 Mar-17
Year-
on-y
ear
per
cent change
Mine production Scrap
200
600
1,000
1,400
1,800
2,200
2,000
2,300
2,600
2,900
3,200
3,500
2005 2008 2011 2014 2017
US
$ a
tro
y o
unce
Tonnes
Mine production Real Gold Price (rhs)
Resources and Energy Quarterly June 2017 77
Figure 10.6: Australia’s gold exports
Source: ABS (2017) International Trade, 5464.0; Department of Industry, Innovation and
Science (2017)
Australia’s production and exports
Exploration expenditure continues to improve
Australia’s gold exploration expenditure increased by 30 per cent year-
on-year to $155 million in the March quarter 2017. Expenditure on gold
exploration projects accounted for 46 per cent of Australia’s total
minerals exploration expenditure in the March quarter. Gold exploration
expenditure was supported by higher world gold prices and the
favourable exchange rate. Western Australia remains the largest centre
of gold exploration activity in Australia, attracting 75 per cent of total
national gold exploration expenditure.
Wet weather dampens production in the first quarter
The estimate for Australia’s gold mine production in 2016–17 has been
revised lower, due to worse-than-expected production in the March
quarter. Australia’s gold mine production is estimated to have increased
by 0.7 per cent in 2016–17 to 287 tonnes. The forecast for mine
production in 2017–18 remains at 304 tonnes.
Australia’s gold production decreased by 1.3 per cent year-on-year in
the March quarter 2017. The decline in production was due to heavy
rainfall disrupting operations at several mines in the northern region of
Western Australia and parts of the Northern Territory. Record rainfall
during January restricted operations at Newcrest’s Telfer mine, where
production fell 32 per cent quarter-on-quarter. Production at Newmont’s
Tanami mine also declined due to wet weather, however, expansionary
work on the mine is expected to maintain annual gold production at
around 14 tonnes over the next five years.
Production at Newcrest’s Cadia Valley was 14 per cent less than
previously forecast — falling to 5.2 tonnes in the March quarter — as
work was done to proactively manage cave draw and optimise the cave
shape. Newcrest’s guidance for Cadia Valley remains unchanged at 23
– 26 tonnes in 2016–17.
Production at Newmont’s Boddington mine — Australia’s largest gold
mine — increased by 7 per cent year-on-year to 6.3 tonnes in March, as
higher ore grades offset lower mill throughput and recovery. Fosterville
— which is Victoria’s largest gold mine — increased production by 54
per cent year-on-year in the March quarter, and is expected produce
over 6 tonnes in 2017.
Export volumes expected to peak in 2018–19
In 2017–18, export volumes are forecast to decline by 2.1 per cent to
319 tonnes. The decline in 2017–18 is from an exceptionally high 2016–
17, which benefited from unexpectedly high imported doré (to be refined
in Australia) in the September quarter 2016. Export volumes are
estimated to be 326 tonnes in 2016–17.
In 2018–19, export volumes are forecast to increase by 4.5 per cent and
reach a peak of 334 tonnes, due to higher domestic production.
In real terms, the value of Australia’s gold exports is forecast to total
$16.5 billion in 2017–18 and $17 billion in 2018–19, with higher
production forecast to offset the impact of lower gold prices.
The value of Australia’s gold exports increased by 8.0 per cent year-on-
year to $3.9 billion in the March quarter of 2017. The increase was due
to higher production and higher domestic gold prices. Export volumes
increased by 7.9 per cent over the same period, to 75 tonnes.
0
5
10
15
20
25
0
100
200
300
400
500
2002–03 2005–06 2008–09 2011–12 2014–15 2017–18
A $
billions
Tonnes
Volume Value (rhs)
Resources and Energy Quarterly June 2017 78
Annual percentage change
World Unit 2016 2017 f 2018 f 2019 f 2017 f 2018 f 2019 f
Total demand t 4,315 4,155 3,913 3,832 -3.7 -5.8 -2.1
– Fabrication consumption b t 2,364 2,440 2,484 2,493 3.2 1.8 0.4
Mine production t 3,255 3,305 3,380 3,414 1.5 2.3 1.0
Price c
– Nominal US$/oz 1,248 1,254 1,234 1,148 0.4 -1.6 -6.9
– Real d US$/oz 1,276 1,254 1,205 1,096 -1.8 -3.9 -9.0
Australia Unit 2015–16 2016–17 s 2017–18 f 2018–19 f 2016–17 s 2017–18 f 2018–19 f
Mine Production t 285 287 304 318 0.8 5.9 4.5
Export volume t 306 326 319 334 6.4 -2.1 4.5
– Nominal value A$m 15,687 17,467 16,858 18,129 11.3 -3.5 7.5
– Real value e A$m 15,961 17,467 16,503 17,366 9.4 -5.5 5.2
Price
– Nominal US$/oz 1,602 1,709 1,642 1,690 6.7 -3.9 2.9
– Real e US$/oz 1,630 1,709 1,607 1,618 4.8 -5.9 0.7
Notes: b Includes jewellery consumption and industrial applications; c London Bullion Market Association PM price; d In 2017 calendar year US dollars; e In 2016–17 financial year Australian
dollars; f Forecast; s estimate.
Source: ABS (2017) International Trade, 5465.0; London Bullion Market Association (2017) gold price PM; World Gold Council (2017); Department of Industry, Innovation and Science.
Table 10.1 Gold outlook
Resources and Energy Quarterly June 2017 80
0
800
1,600
2,400
3,200
0
4
8
12
16
1991 1995 1999 2003 2007 2011 2015 2019
US
$ a
tonne
Weeks o
f consum
ption
Stocks (Weeks of consumption) Real LME aluminium prices
Figure 11.1: Annual aluminium prices and stocks
Source: LME (2017) spot prices; Department of Industry, Innovation and Science (2017)
AluminiumMarket summary
Australia’s aluminium export earnings are estimated to have declined by
1.2 per cent to $3.2 billion in 2016–17. Export volumes in the March
quarter 2017 declined by 25 per cent year-on-year to 265,000 tonnes.
The decline in volumes was attributed to a power outage at Portland
Aluminium in December 2016, and to Rio Tinto’s decision to cut
production at its Boyne Island plant. Production in Portland was not
expected to return to normal in 2016–17. Export volumes for 2016–17
are estimated to have declined by 6.2 per cent to 1.4 million tonnes.
Export values were estimated to have declined by 1.2 per cent, to $3.2
billion (2016–17 dollars).
Export volumes are expected to increase in 2017–18 and 2018–19, as
the Portland Aluminium’s production recovers to at least 90 per cent of
pre-outage levels in 2017–18 and onwards. Over the forecast period,
export volumes are forecast to return to 1.4 million tonnes a financial
year. The Chinese Government’s decision to both curb aluminium
production in the 2017–18 winter season and remove illegal production
capacity, will significantly increase aluminium prices in the second-half
of 2017, and this will improve Australia’s aluminium export earnings. As
a result, export earnings are forecast to reach $3.5 billion and $3.2
billion (2016–17 dollars) in 2017–18 and 2018–19, respectively.
Prices
Prices rise strongly in 2017, but fall modestly in 2018 and 2019
The average London Metal Exchange (LME) spot aluminium price
increased by 22 per cent year-on-year in the first six months of 2017, to
average US$1,880 a tonne. Driving the rise in prices was significant
production cuts in China over the winter period — as output was
reduced to curb chronic air pollution.
Possibly reflecting the Chinese production cuts, LME stocks decreased
by 36 per cent from the beginning of the year to around 1.4 million
tonnes in late June 2017. This trend of lower production growth and
declining stocks is expected to continue over the remainder of 2017, and
contribute to higher aluminium prices.
For the year as a whole, aluminium prices are forecast to average 17 per
cent higher than in 2016, at around US$1,879 a tonne. World inventories
of aluminium are forecast to decline by 30 per cent in 2017, to 5.8 million
tonnes — or around 5.1 weeks of consumption.
It remains unclear whether Beijing’s ‘air pollution control’ policy — which
requires Chinese aluminium smelters to cut production by 30 per cent
during the winter period — will be extended beyond 2017–18. Extending
the policy will put upward pressure on world prices. However, increased
supply from new low-cost capacity additions in China, India, Vietnam
and Russia will weigh prices down. The ‘committed’ and ‘probable’ new
and expansion projects that are expected to come on line in 2018
include China (capacity of 3.2 million tonnes per annum), India (330,000
tonnes), Vietnam (300,000 tonnes) and Russia (150,000 tonnes).
Average LME spot aluminium prices are forecast to decline by 4 per cent
in 2018 and by 8 per cent in 2019, to US$1,807 a tonne and US$1,657 a
tonne (in real terms), respectively.
Global aluminium inventory has been revised higher from the March
2017 Resources and Energy Quarterly — due to data revisions since
2014 (see box below). In ‘weeks of consumption’, inventories are
forecast to reach 5.5 weeks in 2018 and 6.5 weeks in 2019.
Resources and Energy Quarterly June 2017 81
The new methodology takes into consideration the end of year
aluminium stock levels and the global aluminium balance (production
less consumption). The new aluminium inventory calculation attempts to
eliminate the issue of unreported country stocks and tries to present a
more accurate reflection of global stock moves.
For example,
World aluminium inventory 2017 = World aluminium stocks 2016 +
change in global market balance in 2017.
Box 11.1: Aluminium prices and stocks
Prior to 2009, moves exchange stocks of aluminium provided a good
indication of the net state of supply and demand for aluminium, and
helped explain aluminium price movements. However, since the Global
Financial Crisis, inventory moves have made the true state of the market
much less clear.
Record low interest rates in the wake of the GFC saw a surge in
aluminium ‘financing’, whereby metal was purchased and stored in LME
warehouses, and simultaneously sold forward (at a premium) to cover
(financing, rent, insurance) costs and make a guaranteed risk-free
return. However, changes to LME warehousing rules in recent years —
aimed at reducing the resulting ‘shortages’ brought about by LME daily
load-out limits — has helped free up aluminium inventories.
Typically, when stocks (to consumption) decrease, price tends to
increase, and vice versa. However, between 2014 and 2016, LME
aluminium stocks fell by 23 per cent in 2014 to 4.2 million tonnes, by 31
per cent in 2015 to 2.9 million tonnes, and a by further 24 per cent in
2016 to 2.2 million tonnes. Over this period, the average real LME
aluminium price decreased by 1 per cent in 2014 to US$1,890 a tonne,
by 11 per cent in 2015 to US$1,686 a tonne, and a by further 3 per cent
in 2016 to US$1,640 a tonne.
Over the last three years, supply and demand estimates suggest the
world aluminium market was in deficit by 106,000 tonnes in 2014, but in
surplus by 498,000 and 73,000 tonnes in 2015 and 2016, respectively.
The market balance thus appears to contradict the apparent (much
larger) falls in global exchange stocks, and supports the thesis that
aluminium inventories were simply moved off exchange.
Adding to the difficulties of monitoring inventories to interpret underlying
supply and demand fundamentals, the International Aluminium Institute
(IAI) ceased collecting and reporting aluminium producer inventory data
at the end of 2014. Only Germany and Japan’s aluminium stocks are
now reported.
To overcome the difficulties created by the under-reporting of
inventories, the methodology for estimating global aluminium inventories
has been revised.
Consumption
World aluminium consumption to remain strong
World aluminium consumption increased by 8 per cent year-on-year in
the first four months of 2017, to 20 million tonnes, supported by firm
increases in vehicle sales. Vehicle sales in China increased by 4.2 per
cent year-on-year in the first five months of 2017, to just over 11 million
units, despite a Chinese Government decision to roll back the 50 per
cent tax cut on small cars.
In addition to growing vehicle sales in China was the better-than-
expected rises in vehicle sales from Japan (up 32 per cent), Africa and
the Middle East (up 13 per cent), and India (up 7 per cent). Global
vehicle sales are forecast to increase by 2.5 per cent year-on-year in the
remaining three quarters of 2017, supported by a return to growth in
major Emerging markets such as Argentina, Brazil and Russia.
Global industrial production — a significant driver of commodity demand
— is forecast to increase by 2.9 per cent in 2017. As a result, world
aluminium consumption is forecast to grow by 2.9 per cent in 2017 to 60
million tonnes.
World aluminium consumption is forecast to rise at an average annual
rate of 2.8 per cent over the next two years, to 62 million and 63 million
tonnes, respectively. Consumption growth is likely to track trends in
global industrial production, which is forecast to grow by 3.0 per cent
and 2.5 per cent in 2017 and 2018, respectively. The transport sector is
projected to be the key driver of growth in aluminium usage, supported
by increased vehicle sales and higher aluminium intensity in the
production of trains and new vehicles.
Resources and Energy Quarterly June 2017 82
-10
-5
0
5
10
15
20
1991 1994 1997 2000 2003 2006 2009 2012 2015 2018Y
ear-
on-y
ear
per
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World aluminium consumption World industrial production
Figure 11.2: World aluminium consumption
Figure 11.3: Aluminium usage and industrial production, growth
Source: World Bureau of Metal Statistics (2017); Department of Industry, Innovation and
Science (2017)
Source: CPD Netherlands Bureau for Economic Policy Analysis; Department of Industry,
Innovation and Science (2017); World Bureau of Metal Statistics (2017)
Global vehicle sales are expected to increase by 4.0 per cent and 3.2
per cent in 2018 and 2019, respectively, led by projected rises in vehicle
sales in major and emerging automotive markets (such as North
America, China, and Latin America). In China, growth in vehicle sales is
estimated to fall from the double-digit growth rate recorded in 2016.
Aluminium demand from North America is expected to rise at an annual
average rate of over 3 per cent over the next few years, to 7.5 million
tonnes in 2019, buoyed by stronger motor vehicle production. Latin
America is expected to be the fastest growing regional automotive
market in the world, due to more stable currencies in Brazil and
Argentina, and to stronger economic growth in other countries in the
Latin American region.
Global automotive makers are increasingly using aluminium to reduce
vehicle weights and curb emissions. It is estimated that a reduction of
100 kilograms in weight in a vehicle translates to about 0.6 litres less
fuel usage per 100 kilometres distance travelled. Aluminium alloy
replaces steel with equivalent functionality at only half of its weight.
Aluminium use in the manufacture of trains — currently responsible for
around 1 million tonnes of aluminium alloy demand — is forecast to
increase in the next few years. In particular, the market for high-speed
trains is growing at an annual rate 5 per cent.
Production
Production to fall in 2017, but will resume growing in 2018 and 2019
World aluminium production increased by 7 per cent year-on-year in the
first five months of 2017, to 25 million tonnes, driven by a strong growth
(up 11 per cent year-on-year) in China. Chinese producers ramped up
output sharply after winter production restrictions ended. Partially
offsetting the rise in Chinese output was a decline in aluminium output in
Oceania (down by 13 per cent year-on-year), and America (down by 2.5
per cent). The large fall in Oceania production in the March quarter 2017
was due to production cutbacks at Portland Aluminium in Australia.
The Chinese authorities have taken aggressive steps to address air
pollution and excess capacity issues in China. The ‘air pollution control’
policy requires Chinese aluminium smelters to cut aluminium output by
30 per cent over the 2017–18 winter period, and a clamp-down on
‘illegal aluminium capacity’ is to be carried out until the end of 2017.
0
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Million tonnes
Europe Africa Asia America Oceania
Resources and Energy Quarterly June 2017 83
-5
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Year-
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illion tonnes
Europe Africa Asia America Oceania
Figure 11.4: Growth in global vehicle sales
Figure 11.5: World aluminium production
Source: Business Monitor International (2017); Department of Industry, Innovation and
Science (2017)
Source: International Aluminium Institute (2017); Department of Industry, Innovation and
Science (2017)
‘Illegal capacity’ includes facilities that that did not obtain all necessary
approvals from the central government — including the national industry
restructuring guidance — and did not meet aluminium industry standards
and environmental protection requirements. It is estimated that illegal
aluminium capacity in China totals around 6.6 million tonnes. The large
majority (around two thirds, or 4.3 million tonnes) of China’s illegal
capacity is situated in Shandong Province. It is expected that
government inspection teams will report back to the central government
in October 2017, and further production cuts are anticipated over the
remainder of the year.
The crack down on air pollution and ‘illegal capacity’ is expected to
reduce China’s aluminium production by 7 per cent in 2017 to 29 million
tonnes. However, offsetting China’s production cut is the impact of
expected rises in ex-China Asian countries (up 20 per cent) and the
Middle East (up 2 per cent). As a result, the world aluminium production
is forecast to fall by just 1.6 per cent in 2017, to 57 million tonnes.
Global aluminium production is projected to resume growing in 2018 and
2019. Output should reach 64 million tonnes by 2019, driven by
increased capacity in China and other ex-China Asian countries. China
will add new aluminium smelting capacity that is more efficient and
friendly to the environment than the old plants being forcibly retired. A
forecast increase in aluminium prices in 2017 will encourage Chinese
smelters to increase output rates, particularly from those operators
facing production cuts in the 2017–18 winter season. Despite Chinese
local and central governments’ attempt to reduce excess capacity,
China’s production is forecast to grow by 8 per cent and 3 per cent in
2018 and 2019, to 33 and 35 million tonnes, respectively.
There is still uncertainty over whether or not the ‘air pollution policy’ and
‘illegal capacity policy’ being implemented by the Chinese authorities will
be extended after the 2017–18 winter season. There have been were
similar polices in the past, but they failed to curb excess capacity. From
similar current crackdowns on steel production, it appears that Beijing is
more determined this time around. Production data will eventually help
reveal whether the air pollution and illegal capacity control policies have
succeeded.
Resources and Energy Quarterly June 2017 84
Figure 11.6: Australia’s aluminium production and exports
Source: ABS (2017) International Trade in Goods and Services, 5368.0; Department of
Industry, Innovation and Science (2017)
Australia’s production and exports
Production to fall sharply in 2017
In the March quarter 2017, Australia’s aluminium production decreased
by 13 per cent to 348,000 tonnes, due to reduced capacity at the
Portland smelter (following a power outage in December 2016). Over
this period, Portland’s quarterly production was 23,000 tonnes, around
40 per cent of pre-outage levels. Production at Boyne Island fell by 6.8
per cent year-on-year in the March quarter of 2017 to 135,000 tonnes,
as Rio Tinto decided to lower output in response to higher power prices.
For 2016–17 as a whole, Australia’s aluminium production is estimated
to fall by 6.8 per cent to 1.5 million tonnes. Portland Aluminium’s pre-
outage production levels are not expected to be restored until August
2017.
Production at the Portland smelter is expected to be at least 90 per cent
of pre-outage levels in 2017–18 and onwards, at around 264,000 tonnes
a year. It is unlikely that the Boyne Island smelter will return to full
production soon, due to an ongoing high power prices. As a result,
Australia’s aluminium production for the next two financial years is
forecast to remain at around 1.6 million tonnes.
Energy security and supply issues in Australia are expected to be an
ongoing concern for Australian aluminium smelters. The Finkel Review
(officially the Independent Review into the Future Security) of the
National Electricity Market) recommends action to create a reliable and
affordable energy system in Australia, and provides a way forward for
energy policy at a national level. The Tomago aluminium smelter has
expressed interest in purchasing coal-fired electricity from any potential
supplier in the Hunter Valley. This will boost the chance of a new power
plant being built in the region, which will in turn contribute to the stability
of the region’s power supply. Any supply or demand shocks to electricity
prices would have adverse impacts on aluminium production in
Australia. Rio Tinto’s decision to curtail the output of its Boyne Island
smelter in 2017 highlights the seriousness of power price issue. Rising
power prices have the potential to undermine the sustainability of the
Australian aluminium industry.
Capacity constraint hinders export opportunities
Australia’s aluminium export earnings declined by 18 per cent year-on-
year to $650 million in the March quarter 2017, reflecting a decline in
export volumes (down 25 per cent to 265,000 tonnes). As a result, the
estimate for Australia’s aluminium export values and volumes for 2016–
17 has been revised down by 5 per cent and 2.7 per cent, to $3.2 billion
and 1.4 million tonnes, respectively.
In 2017–18, Australia’s aluminium export volumes and values are
forecast to rise by 4.1 and 10 per cent, respectively, to 1.4 million tonnes
and $3.5 billion (2016–17 dollars), driven by an expected increase in
production at Portland Aluminium, and higher aluminium prices in the
first half of 2017–18. The Chinese Government’s decision to curb
aluminium production in the 2017–18 winter season will increase
aluminium prices in the second-half of 2017, and this is expected to
support increased earnings for Australian aluminium exports.
Australia’s aluminium exports for 2018–19 are forecast to remain steady,
at 1.4 million tonnes. However, export values are forecast to fall by 10
per cent to $3.2 billion (2016–17 dollars), because of a projected fall in
aluminium prices in 2018 and 2019.
0
2
4
6
8
0.0
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1990-91 1995-96 2000-01 2005-06 2010-11 2015-16
2016-1
7 A
$ b
illion
Million tonnes
Aluminium production Export volume Export value - Real
Resources and Energy Quarterly June 2017 85
0
100
200
300
400
500
600
1990 1994 1998 2002 2006 2010 2014 2018
US
$ a
tonne (
FO
B A
ustr
alia)
Figure 11.7: Annual alumina price
Source: Bloomberg (2017) alumina monthly price; Department of Industry, Innovation and
Science (2017)
AluminaMarket summary
Australia’s alumina export earnings are estimated to have increased by
3.6 per cent in 2016–17 to $6.3 billion, supported by a strong growth in
alumina prices in the first three months of 2017. However, export values
are forecast to fall by 5.5 per cent in 2017–18 and by 1.6 per cent in
2018–19, to $5.8 billion (2016–17 dollars), because of a forecast
decrease in alumina prices. Export volumes are estimated to have
increased by 1.5 per cent in 2016–17, to 18 million tonnes, and are
forecast to rise modestly (by an average 0.8 per cent a year) in 2017–18
and 2018–19, supported by production cuts in China.
Prices
Alumina prices forecast to grow strongly in 2017, but come under
pressure in 2018 and 2019
The average FOB Australia alumina price increased by 34 per cent year-
on-year in the first six months of 2017, to average US$318 a tonne,
driven by the expectation of Chinese production cuts. The change in
regulatory policies in China — where refineries have been asked to cut
production by 30 per cent during the 2017–18 winter season, and
undergo an illegal capacity investigation until the end of 2017 — is likely
to push up alumina prices in 2017. As a result, the average FOB
Australia alumina price is forecast to rise by 28 per cent in 2017, to
average $US332 a tonne.
Further out, FOB Australia alumina prices are forecast to come under
pressure, falling by 4.1 per cent and 5.8 per cent in 2018 and 2019, to
$US318 a tonne and $US300 a tonne, respectively. New capacity
additions in China and other major producing countries, are expected to
put downward pressure on prices. It is projected that China will add over
6.8 million of refinery capacity in 2018, from greenfield and expansion
projects. In particular, industrial heavyweights Shandong and Shanxi are
forecast to add 2.0 million tonnes and 1.8 million tonnes per annum,
respectively, to the country’s alumina capacity by 2018. Outside of
China, India and the UAE are projected to add another 3 million tonnes
of new refinery capacity in 2018.
Consumption
Modest growth in alumina consumption in 2018 and 2019
In the five months of 2017, world alumina consumption increased by 7
per cent year-on-year, to 44 million tonnes, because of stronger demand
from aluminium smelters. In China — the world’s largest alumina
consumer — alumina consumption increased by 11 per cent year-on-
year, to 23 million tonnes, in line with the rise in China’s aluminium
production.
In Australia, alumina consumption declined by 13 per cent year-on-year
in the March quarter, affected by reduced production capacity in
Portland Aluminium following the power outage in December 2016.
Alumina consumption in America and Europe moved in the same
direction, down 2.5 and 1.2 per cent over the first five months of 2017,
respectively. For 2017 as a whole, global consumption of alumina is
expected to decline by 1.1 per cent to nearly 109 million tonnes,
because of production cut in China over the 2017–18 winter period.
Resources and Energy Quarterly June 2017 86
Figure 11.8: World alumina consumption
Figure 11.9: World alumina production
Source: AME Group (2017); Department of Industry, Innovation and Science (2017);
World Bureau of Metals Statistics (2017)
Source: International Aluminium Institute (2017); Department of Industry, Innovation and
Science (2017)
Production
Alumina production to fall in 2017, but return to grow in 2018 and 2019
World alumina production increased by 17 per cent year-on-year in the
first five months of 2017, to nearly 54 million tonnes, mainly driven by
increased production in China (the world’s largest alumina producer).
The rise in Chinese production reflected Chinese refineries’ strategy to
maximise output ahead of production cuts in the 2017–18 winter season.
In addition, there were several new refining capacity start-ups during the
March quarter 2017, including the Chalco Zhengzhou and the East Hope
Jinzhong refineries, both of one million tonnes. Outside of China, output
in Europe rose by 2.5 per cent year-on-year in the first five months of
2017, to 4.3 million tonnes. However, North American alumina output fell
by 32 per cent year-on-year in the first five months of 2017, to about 1.3
million tonnes, as US refineries decided not to raise production until they
know the outcome of the ongoing anti-dumping cases against China.
For 2017 as a whole, global alumina production is forecast to fall by 8
per cent to 106 million tonnes, largely due to production cuts in China.
This is a larger than expected decline than the previous forecast,
reflecting the larger impact of the Chinese and US government’s policies
on their country’s alumina refineries — expected to more than offset the
impact of the delay of new projects in other Asian (ex-China) countries.
China’s ‘air pollution control’ control policy, and the ‘illegal capacity’
crackdown, are forecast to reduce that country’s alumina production by
15 per cent in 2017, to 52 million tonnes. US alumina refineries are
unlikely to boost their output for the remainder of 2017, pending the
Trump Administration’s decision on imported Chinese aluminium. In
India, the 1.6 million tonnes a year Lanjigarh refinery expansion project
is not likely to be operational in 2017, because of poor bauxite
availability. In Indonesia, the 1 million tonnes a year Shandong Nanshan
Bintan Island and 2 million tonnes a year Mempawah refinery projects,
are expected to be delayed into 2018–19.
In 2018 and 2019, world alumina production is projected to resume
growing at an annual rate of 5 per cent, reaching 117 million tonnes by
2019. There is no indication yet that the Chinese Government will
continue requesting alumina refineries to curb production — thereby
reducing air pollution — in winter seasons from 2018 onwards.
0
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1991 1995 1999 2003 2007 2011 2015 2019
Million tonnes
Europe Africa Asia America Oceania
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Resources and Energy Quarterly June 2017 87
Figure 11.10: Australia’s alumina production and exports
Source: ABS (2017) International Trade in Goods and Services, 5368.0; Department of
Industry, Innovation and Science (2017)
China’s alumina production is forecast to increase by 2.0 per cent and
3.6 per cent in 2018 and 2019, to 52 and 54 million tonnes, respectively.
Production in North America is forecast to rise in 2018 and 2019, up by
12 per cent and 2.2 per cent to 17.5 million tonnes and 17.9 million
tonnes, respectively, on the assumption that anti-dumping issues will be
resolved. Global alumina production over this forecast period is
expected to be impacted by delays to the 1.5 million tonnes a year Al
Taweelah Alumina project in the UAE, and the 1.6 million tonnes a year
Alpart Alumina project in Jamaica.
Australia’s production and exports
Australia’s alumina production to remain steady
In the March quarter 2017, Australia’s alumina production decreased by
2.8 per cent from the December quarter 2016, to 5.1 million tonnes, due
to reduced output from Rio Tinto’s Queensland Alumina Limited (QAL)
refineries. Cyclone Debbie reached the northern Queensland region at
the end of March, and disrupted the operation and production of the QAL
for a number of days. Production is expected to have risen by 1.8 per
cent in the last quarter of 2016–17, supported by a return to normal
production capacity at the Gladstone refineries. As a result, Australia’s
alumina production is forecast to have increased by 0.4 per cent in
2016–17, to nearly 21 million tonnes.
Going forward, alumina production in Australia is forecast to be little
changed, at about 21 million tonnes in 2017–18 and 2018–19, with no
planned closures/expansions or major disruptions at existing operations.
Exports to rise modestly
In the March quarter 2017, Australia’s alumina export earnings rose by
19 per cent year-on-year to $1.9 billion. The result came as higher prices
more than outweighed the impact of lower export volumes. The
expected return to normal production capacity in the Queensland
Alumina refineries in the fourth quarter of 2016–17, will boost Australia’s
alumina exports. Export volumes and values are estimated to have
increased by 1.9 per cent and 3.6 per cent in 2016–17, to 18 million
tonnes and $6.3 billion (2016–17 dollars), respectively. Export earnings
have been revised up by 7 per cent since the March 2017 Resources
and Energy Quarterly, driven by strong growth in alumina prices since
the beginning of the year.
In 2017–18 and 2018–19, there will be emerging opportunities and
challenges for Australia’s alumina exports. The projected increase in
aluminium production in China and the Middle East over the next two
years is expected to boost the demand for alumina. As a result,
Australia’s alumina exports are forecast to increase at an annual rate of
0.8 per cent, reaching 18.3 million tonnes in 2018–19. However, export
earnings are forecast to fall at an annual rate of 3.8 per cent to $5.8
billion (2016–17 dollars) by 2018–19, because of a likely decline in
alumina prices.
There are risks to the outlook. Firstly, alumina exports are likely to be
constrained by production capacity limits, with no major additions
scheduled until 2018–19. Secondly, new capacity additions from China
and elsewhere will come on line, with an estimate of 19 million tonnes a
year of additional capacity. Thirdly, the rise of India as a potential
supplier of alumina to China will intensify the competition for sales of
alumina to China. India’s share of China’s total alumina imports
increased from 5.0 per cent in the December quarter 2016, to 13 per
cent in the March quarter 2017.
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Resources and Energy Quarterly June 2017 88
0
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1990 1994 1998 2002 2006 2010 2014 2018
Million tonnes
Figure 11.11: World bauxite production
Source: World Bureau of Metal Statistics (2017); Department of Industry, Innovation and
Science (2017)
BauxiteMarket summary
The outlook for Australia’s bauxite exports is positive, but there are short
term challenges because of regulatory changes in China. The ‘air
pollution control’ policy and the clamp-down on ‘illegal capacity’ in China
are likely to have a profound impact on Australian bauxite exports in
2017. As a result, export volumes and values are forecast to fall by 2
and 7 per cent in 2017–18, to 23 million tonnes and $921 million (2016–
17 dollars), respectively. However, the prospects for Australia’s bauxite
exports are brighter in 2018–19, driven by the growth in China’s alumina
production. Export volumes and earnings are forecast to grow by 19 and
6 per cent, to 28 million tonnes and $977 million (2016–17 dollars),
respectively.
Production
World bauxite production to rise strongly in 2018 and 2019
In the first four months of 2017, world bauxite production remained
unchanged year-on-year, at 92 million tonnes, as production in Australia
and China — the world’s largest and 2nd largest bauxite producers,
respectively — remained unchanged at nearly 28 and 22 million tonnes,
respectively. For 2017 as a whole, Chinese bauxite production is
estimated to fall by 7 per cent to around 61 million tonnes, due to
curtailed alumina production in the 2017–18 winter season. Offsetting
the fall in Chinese production is the rise in Australia’s bauxite output
(estimated increase of 1.5 per cent), Africa (up 30 per cent), and South
America (up 1.8 per cent). As a result, world bauxite production is
estimated to rise by 2.8 per cent to around 279 million tonnes.
World bauxite production is forecast to rise by 7 per cent and 8 per cent
in 2018 and 2019, to 300 and 324 million tonnes, respectively, primarily
driven by new capacity additions in Australia. With the addition of Metro
Mining’s Bauxite Hills project in 2018, and Rio Tinto’s Amrun project in
2019, Australian bauxite output is forecast to increase at annual rate of
at least 6 per cent, to 92 million tonnes by 2018–19.
China’s bauxite production is unlikely to rise significantly over the next
two years, as the declining quality of domestic bauxite and the depletion
of resources in China deter future investment. China’s bauxite imports
rose by 47% year-on-year in May, taking the January–May 2017 rise on
the corresponding period in 2016 to 15%. Other contributors to
increased global bauxite production include Guinea, Malaysia and
Indonesia. In Malaysia, the government imposed a complete mining ban
at the start of 2016, in order to limit supply growth and address socio-
environmental concerns. The ban has been extended four times, and is
expectedly to be lifted at the beginning the September quarter 2017. In
Indonesia, the government recently lifted the ban on bauxite exports that
had been implemented from 2014 to 2016. The removal of the export
ban is likely to be a stimulus for increased bauxite production in
Indonesia and the world as a whole.
The risk to the global bauxite production forecast comes from energy
and environmental concerns in Guinea. It was claimed by the protestors
in the city of Boke — a key bauxite mining area in Guinea — that bauxite
mining activities are the cause of high pollution levels and electricity
shortages in the nation. Any disruption to the country’s bauxite
operations is likely to have a significant impact on global bauxite output.
Resources and Energy Quarterly June 2017 89
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Production Export volumes Export real values
Figure 11.12: Australia’s bauxite production and exports
Source: ABS (2017) International Trade in Goods and Services, 5368.0; Department of
Industry, Innovation and Science (2017)
Australia’s production and exports
Australia’s bauxite production escalates in 2019
In the March quarter 2017, Australia’s bauxite production increased by 2
per cent year-on-year to around 21 million tonnes, with two out of three
bauxite producers recording a rise in production. Production at Rio
Tinto’s Gove and Weipa mines in the Northern Territory and Queensland
increased by 8 per cent and 6 per cent year-on-year, to 2.4 million
tonnes and nearly 7 million tonnes, respectively. However, production at
South 32’s Worsley mine in the Western Australia was down by 1.1 per
cent year-on-year to more than 11 million tonnes. For the remainder of
2016–17, there were no scheduled additions or disruptions to existing
operations. As a result, Australia’s bauxite production is estimated to
have increased by 1.5 per cent to 83 million tonnes.
Australia’s bauxite production growth is expected to accelerate in 2018–
19, buoyed by the commissioning of the 5 million tonnes a year Metro
Mining’s Bauxite Hills project in the June quarter 2018, and the 23
million tonnes a year Rio Tinto’s Amrun project in the March quarter
2019. These new additions will increase Australian bauxite output by 1.2
per cent and 10 per cent in 2017–18 and 2018–19, to 84 million tonnes
and 93 million tonnes, respectively. The risk to this forecast rests in the
energy supply issues that Australia is currently facing: rising power costs
will have a considerable impact on operational costs and profitability.
Exports to be affected by regulatory changes in China
Australia’s bauxite export earnings increased by 2 per cent year-on-year
in the March quarter 2017 to $233 million, driven by an 8 per cent year-
on-year rise in bauxite export volumes to China to 5.5 million tonnes. For
2016–17 as a whole, export volumes are estimated to have increased by
14 per cent, to nearly 24 million tonnes. However, export values are
estimated to have fallen by 1.5 per cent to $994 million, because of
lower bauxite prices.
The Chinese Government’s air pollution controls and its clamp down on
illegal capacity are likely to have a larger impact on Australia’s bauxite
exports in 2017–18 than previously estimated. Export volumes and
earnings have been revised down by 7 per cent and 14 per cent, to 23
million tonnes and $921 million (2016–17 dollars), respectively.
The outlook for Australian bauxite exports is brighter in 2018–19, with
export volumes and values forecast to grow by 19 per cent and 6 per
cent, to nearly 28 million tonnes and $977 million (2016–17 dollars),
respectively. An expected rise in alumina production in China will drive
the increased Australian bauxite exports.
The risk to the Australian bauxite production outlook will come from
increased competition from newly-emerging bauxite exporters. For
example, in April 2017, Fiji made its first shipment of bauxite in the first
week of April 2017, exporting 70,000 tonnes of bauxite to China. The
Republic of Fiji is home to the Vanua Levu mine, one of the largest
bauxite mines in Oceania, with an estimated reserve of 1 billion tonnes.
Furthermore, the Emirates Global Aluminium Company of the UAE has
recently opened a representative office in Shanghai, China, to promote
the sales of bauxite from its joint-venture Guinea bauxite mine, Guinea
Alumina Corporation (GAC). The GAC bauxite project is expected to
commence production in 2018, with an annual capacity of 12 million
tonnes a year.
Resources and Energy Quarterly June 2017 90
Annual percentage change
World Unit 2016 2017 f 2018 f 2019 f 2017 f 2018 f 2019 f
Primary aluminium
Production kt 58,158 57,222 62,177 64,480 -1.6 8.7 3.7
Consumption kt 58,085 59,744 61,548 63,092 2.9 3.0 2.5
Closing stocks b kt 2,762 2,705 2,651 2,598 -2.0 -2.0 -2.0
– weeks of consumption 7.5 5.1 5.5 6.5 -32.2 7.5 18.5
Prices aluminium c
– nominal US$/t 1,604 1,879 1,851 1,736 17.1 -1.5 -6.2
– real d US$/t 1,640 1,879 1,807 1,657 14.6 -3.8 -8.3
Prices alumina spot
– nominal US$/t 253.2 331.8 325.8 314.1 31.0 -1.8 -3.6
– real d US$/t 258.9 331.8 318.2 299.8 28.2 -4.1 -5.8
Australia Unit 2015–16 2016–17 s 2017–18 f 2018–19 f 2016–17 s 2017–18 f 2018–19 f
Production
Primary aluminium kt 1,649 1,536 1,589 1,586 -6.8 3.4 -0.2
Alumina kt 20,550 20,641 20,680 20,834 0.4 0.2 0.7
Bauxite Mt 81.7 83.2 83.7 92.4 1.7 0.7 10.4
Consumption
Primary aluminium kt 207 165 181 177 -20.5 9.9 -1.9
Exports
Primary aluminium kt 1,442 1,353 1,407 1,395 -6.2 4.0 -0.8
– nominal value A$m 3,241 3,202 3,593 3,314 -1.2 12.2 -7.8
– real value e A$m 3,298 3,202 3,518 3,174 -2.9 9.9 -9.8
Alumina kt 17,676 17,938 18,120 18,265 1.5 1.0 0.8
– nominal value A$m 5,995 6,286 6,066 6,103 4.8 -3.5 0.6
– real value e A$m 6,100 6,286 5,939 5,846 3.0 -5.5 -1.6
Bauxite Kt 20,971 23,807 23,339 27,813 13.5 -2.0 19.2
– nominal value A$m 992 994 940 1,020 0.2 -5.4 8.4
– real value e A$m 1,009 994 921 977 -1.5 -7.4 6.1
Total value
– nominal A$m 10,228 10,482 10,600 10,436 2.5 1.1 -1.5
– real e A$m 10,407 10,482 10,377 9,997 0.7 -1.0 -3.7
Notes: b Producer and LME stocks; c LME cash prices for primary aluminium; d In 2017 calendar year US dollars; e In 2016-17 financial year Australian dollars; f Forecast; s Estimate
Source: ABS (2017) International Trade in Goods and Services , 5368.0; AME Group (2017); LME (2017); Department of Industry, Innovation and Science (2017); International Aluminium
Institute (2017); World Bureau of Metal Statistics (2017)
Table 11.1: Aluminium, alumina and bauxite outlook
Resources and Energy Quarterly June 2017 92
Figure 12.1: Copper prices and stocks on major exchanges
Figure 12.2: Copper price and market balance
Source: LME (2017) official cash price; Bloomberg (2017) stock inventory at LME,
COMEX and SHFE
Source: World Bureau of Metal Statistics (2017); Department of Industry, Innovation and
Science (2017)
Market summary
After rising in the March quarter, world copper prices declined in the
June quarter 2017, weighed down by declining demand and higher
inventories. Disruptions at a number of major mines in the March quarter
were largely offset by new mine supply and expansion projects coming
online. Australian production was steady in the March quarter, despite
weather-related disruptions impacting several operations. Australia’s
copper exports decreased by 18 per cent year-on-year in the March
quarter, led by lower exports to Asian destinations. Copper export
earnings are forecast to increase by 8.4 per cent in 2017–18 to $8.0
billion, supported by higher prices and volumes.
Prices
Copper prices drift lower in the June quarter
The London Metal Exchange (LME) spot copper price declined in the
June quarter, reaching a low of $5,466 on 8th May. Copper prices have
been weighed down by weaker consumption and relatively high
inventories. Copper stocks on the major exchanges reached a three-
year high in March, and have since remained elevated despite supply
disruptions at three of the world’s largest mines.
The LME copper spot price is forecast to average US$5,667 per tonne in
2017, up by 17 per cent from 2016. This represents a downward revision
from March 2017 Resources and Energy Quarterly, reflecting a larger
than expected market surplus. The larger surplus derives from slightly
lower expectations for demand from China and the US — the world’s
two largest copper users. Copper prices are forecast to decline by 4.1
per cent in 2018 to US$5,438 per tonne, weighed down by both strong
growth in mine supply and slightly lower expectations for global demand.
There are several risks to the outlook for copper prices in the near term.
Industrial action by mine workers, and government intervention on trade
and mine operations, could introduce further supply disruptions in the
second half of 2017. On the other hand, weaker than expected economic
growth in China may have a dampening effect on prices. A strong
appreciation of the US dollar remains a key risk to the outlook. A rising
US dollar makes copper more expensive for non-US residents, and thus
tends to have a dampening effect on consumption.
2,000
4,000
6,000
8,000
200
400
600
800
Jan-15 Jul-15 Jan-16 Jul-16 Jan-17
2017 U
S$ a
tonne
Thousand tonnes
Stocks Major Exchanges LME Spot price
0
2,000
4,000
6,000
8,000
10,000
-1,000
-600
-200
200
600
1,000
2000 2003 2006 2009 2012 2015 2018
2017 U
S$ a
tonne
Thousand tonnes
Market Balance Real price (rhs)
Resources and Energy Quarterly June 2017 93
Figure 12.3: World Copper Consumption and Industrial Production
Figure 12.4: Growth in China’s copper imports
Source: World Bureau of Metal Statistics (2017); Bloomberg (2017) Netherland CPB;
Department of Industry, Innovation and Science (2017)
Source: Bloomberg (2017) General Administration of Customs, China
World consumption
Copper consumption weighed down by key markets
World refined copper consumption decreased by 3.6 per cent year-on-
year in the first four months of 2017, to 7.5 million tonnes. Consumption
was weighed down by weaker demand from China and Europe.
However, several nations’ consumption grew significantly, such as
South Korea, Taiwan and Brazil. Due to the larger than expected decline
in consumption in the first four months, the forecast for global copper
consumption in 2017 has been revised down to 23 million tonnes.
Copper consumption in China declined by 7.7 per cent year-on-year in
the first four months, to 3.7 million tonnes. Commercial ‘floor-space
started’ — a leading indicator for China’s construction sector —
increased by 3.1 per cent year-on-year in the first five months of 2017.
China’s capital investment in the power grid construction increased by
5.5 per cent year-on-year in the first five months of 2017. The pace of
investment growth is much lower than at the start of 2016, however,
copper demand is expected to rise in 2017, as the power grid is
expanded to keep pace with rising electricity demand.
China’s imports of refined copper fell 28 per cent year-on-year over the
first five months of 2017. However, imports of copper ores and
concentrates and scrap copper have risen. Ore and concentrate imports
rose by 1.9 per cent over the same period, reflecting a structural trend
towards refining copper ores in China, instead of importing refined metal.
Scrap copper imports rose by 18 per cent in January-May 2017.
Copper consumption in the US declined by 1.7 per cent year-on-year in
the first four months of 2017. The construction sector remains the
strongest source of growth for copper demand in the US. New housing
permits increased by 8.3 per cent year-on-year in the first five months,
pointing to stronger demand for copper in 2017. The US manufacturing
sector started the year weaker, with production of electrical equipment
flat, and vehicle production falling by 3.2 per cent year-on-year in the
first five months of 2017.
Growth in global investment in infrastructure and urbanisation in
Emerging economies is expected to drive much of the growth in copper
consumption over the next two years. Copper consumption is forecast to
increase by 3.4 per cent in 2018 to 24 million tonnes, and rise by a
further 2.7 per cent in 2019, to 25 million tonnes.
-15
-10
-5
0
5
10
15
Mar-96 Mar-03 Mar-10 Mar-17Year–
on–yaer
per
cent change
Consumption Industrial Production
-40
-20
-
20
40
60
80
Jan-14 Nov-14 Sep-15 Jul-16 May-17Y
ear-
on-y
ear
per
cent change
Refined Ores & Cons
Resources and Energy Quarterly June 2017 94
Figure 12.5: World Copper Refined Production
Source: World Bureau of Metal Statistics (2017); Department of Industry, Innovation and
Science (2017)
World production
World mine copper production remains historically high
World mine copper production decreased by 0.6 per cent year-on-year in
the first four months of 2017. The year-on-year decrease was weighed
down by supply disruptions at three of the world’s largest mines, and by
lower than expected production elsewhere. The forecast for world mine
production in 2017 has been revised down to 20 million tonnes.
Chile, Canada and the United States all had lower production year-on-
year in the March quarter. Output at the world’s largest copper mine,
Escondida in Chile, declined by 64 per cent year-on-year to 94,900
tonnes. The decline was due to strike action, which interrupted
production for almost two months. In Peru, the ramp-up in production at
Las Bambas continues; the mine produced over 111,000 tonnes in the
March quarter.
An additional 430,000 tonnes of copper from new mines and expansions
is expected to come online in 2017. Of this figure, over half is from
sources which are currently producing. Aktogay in Kazakhstan —
operated by KAZ Minerals — is expected to produce 95,000 tonnes,
making it the largest contributor to new mine supply in 2017.
Several large-scale mines and expansions are expected to achieve
commercial production in 2018. By far the largest contribution will come
from Cobre Panama, operated by First Quantum Minerals. The mine has
an estimated annual capacity of 330,000 tonnes. Qulong, a new copper
project operated by Tibet Julong Mining, is expected to produce 120,000
tonnes annually from 2018. Two notable expansion projects, Codelco’s
Radomiro in Chile and Southern Copper’s Toquepala in Peru, are both
expected to contribute an additional 100,000 tonnes each in 2018.
As further new mines commence production and others expand, copper
mine production is forecast to rise by 3.8 per cent in 2018 to 21 million
tonnes, and to rise by 1.6 per cent in 2019 to 22 million tonnes.
Slow start for world refined copper production
World refined copper production decreased by 0.6 per cent year-on-year
in the first four months of 2017 to 7.7 million tonnes. Refined copper
output was weighed down by mine disruptions that impacted on the
supply of copper ores and concentrates.
Refined copper output is forecast to reach 24 million tonnes in 2017,
which is similar to last year.
An additional 648,000 tonnes of refining capacity are expected to come
online in 2017. Most of the new refining capacity will be in China, where
five projects are expected to contribute an additional 585,000 tonnes of
refining capacity. The expansion in China’s refinery production is
expected to continue in 2018, with an additional six projects providing a
combined output of 570,000 tonnes.
Refined production is forecast to increase by 3.6 per cent in 2018, to 24
million tonnes, leading to a market surplus of 164,000 tonnes.
In 2019, relatively stronger consumption growth is forecast to outweigh
an increase in refined production (up by 1.6 per cent to 25 million
tonnes), in line with rising world mine supply. As a result, the market
balance is expected to tighten in 2019, to show a 94,000 tonne deficit.
-6
-4
-2
0
2
4
6
8
10
12
Mar-02 Mar-07 Mar-12 Mar-17
Year–
on–year
per
cent change
Resources and Energy Quarterly June 2017 95
Figure 12.6: Australian copper export volume and values
Source: ABS (2017) International Trade, 5465.0; Department of Industry, Innovation and
Science (2017)
Australia’s production and exports
Exploration expenditure declines in March Quarter
Australia’s copper exploration expenditure decreased by 27 per cent
year-on-year in the March quarter 2017, to $27 million — the lowest first
quarter result since 2009. Copper exploration expenditure has been in
steady decline since 2012, weighed down by falling world prices. The
decline in March was impacted by exceptional wet weather. Exploration
in Western Australia declined by 46 per cent year-on-year in the March
quarter, mostly due to heavy rainfall in January. Exploration expenditure
in Queensland declined by 26 per cent year-on-year, as Cyclone Debbie
impacted drilling operations. Few weather-related events were recorded
in South Australia, where expenditure increased by 20 per cent year-on-
year, to $3.6 million. Expenditure is expected to rise in 2017, as higher
prices encourage new exploration.
Production was steady in the March quarter
Australia produced 237,200 tonnes of copper ores and concentrates in
the March quarter, virtually unchanged from March 2016. Australia’s
mine production of copper is estimated to have reached 944,800 tonnes
in 2016-17.
Despite the impact of Cyclone Debbie and a train derailment,
Queensland copper production increased by 20 per cent year-on-year in
March quarter. Production at Oz Minerals’ Prominent Hill operations in
South Australia was impacted by heavy rainfall in the March quarter.
Despite the rain, Oz Minerals still expects to reach annual production of
over 105,000 tonnes in 2017 , as production ramps up in the September
quarter.
Mount Lyell — operated by Vedanta’s Copper Mines of Tasmania —
may restart in late 2018, after the Tasmanian Government announced a
further $9.5 million in funding to support the mine’s reopening. Mount
Lyell has been on care and maintenance since 2014, due to the tragic
death of three workers.
Australian production is forecast to increase by 4.6 per cent in 2017–18,
to 988,700 tonnes. Production at Olympic Dam is expected to rise over
the outlook period, as zones of higher grade ore are mined. With the
recommissioning of Mount Lyell expected to add an additional 30,000
tonnes, Australian production is forecast to increase by 0.4 per cent in
2018–19, to 992,600 tonnes.
Refined copper exports declined in the March quarter
Australia’s copper export earnings declined by 13 per cent year-on-year
in the March quarter, to $975 million. The decline was due to lower
export volumes of both copper ores and concentrates, as well as refined
copper, which fell by 26 per cent year-on-year. Higher exports of copper
ores and concentrates to Japan (up by 21 per cent year-on-year to
125,000 tonnes) and China (up by 15 per cent over the same period to
204,000 tonnes), were offset by lower export volumes of copper ores
and concentrates to India, South Korea and the Philippines.
Australia’s copper exports (in metal-content terms) are forecast to
increase by 2.7 per cent in 2017–18, to 933,000 tonnes, with a value of
$8.1 billion (in real terms). Copper exports remain supported by
historically high consumption in China, which accounts for 47 per cent of
Australia’s copper exports. Australia’s copper exports are forecast to
increase by 1.6 per cent to 948,000 tonnes in 2018–19, valued at $7.8
billion (in real terms).
0
2
4
6
8
10
200
400
600
800
1,000
1,200
2005–06 2008–09 2011–12 2014–15 2017–18
2016–17 A
$ b
illions
Volume Value (rhs)
Meta
llic
conte
nt th
ousand tonnes
Resources and Energy Quarterly June 2017 96
Annual percentage change
World Unit 2016 2017 f 2018 f 2019 f 2017 f 2018 f 2019 f
Production
– mine kt 20,753 20,407 21,184 21,531 -1.7 3.8 1.6
– refined kt 23,530 23,509 24,361 24,761 -0.1 3.6 1.6
Consumption kt 23,331 23,402 24,197 24,855 0.3 3.4 2.7
Closing stocks kt 1 095 1 203 1 367 1 273 9.8 13.6 -6.9
– weeks of consumption 2.4 2.7 2.9 2.7 9.5 9.9 -9.3
Price LME
– nominal US$/t 4,863 5,667 5,568 5,672 16.5 -1.7 1.9
USc/lb 221 257 253 257 16.5 -1.7 1.9
– real b US$/t 4,972 5,667 5,438 5,415 14.0 -4.0 -0.4
USc/lb 226 257 247 246 14.0 -4.0 -0.4
Australia Unit 2015–16 2016–17 s 2017–18 f 2018–19 f 2016–17 s 2017–18 f 2018–19 f
Mine production kt 990 945 989 993 -4.5 4.6 0.4
Refined production kt 514 465 480 478 -9.5 3.2 -0.3
Export volume
– ores and conc. c kt 1,870 1,695 1,755 1,817 -9.4 3.5 3.5
– refined kt 507 411 421 419 -18.9 2.4 -0.3
– total metallic content kt 1,050 909 933 948 -13.4 2.7 1.6
Export value
– nominal A$m 8,110 7,439 8,062 8,148 -8.3 8.4 1.1
– real d A$m 8,252 7,439 7,892 7,804 -9.9 6.1 -1.1
Notes: b In 2017 calendar year US dollars; c Quantities refer to gross weight of all ores and concentrates; d In 2016–17 financial year Australian dollars; f Forecast; s estimate.
Source: ABS (2017) International Trade, 5465.0; LME (2017) spot price; World Bureau of Metal Statistics (2017) World Metal Statistics; Department of Industry, Innovation and Science (2017).
Table 12.1 Copper outlook
Resources and Energy Quarterly June 201798
Figure 13.1: LME nickel spot price
Source: Bloomberg (2017) London Metal Exchange
Source: ABS (2017) International Trade in Goods and Services, 5368.0;Department of
Industry, Innovation and Science (2017)
Market summary
Australia’s nickel export earnings are estimated to have declined by 31
per cent to $2.1 billion in 2016–17, largely reflecting a decline in export
volumes. The cessation of production at Queensland Nickel’s Yabulu
refinery, as well as several mine closures in Western Australia,
contributed to the decline.
Over the next two years, nickel export values are forecast to be relatively
steady. The ramping up of production at Independence Group’s Nova
mine is expected to contribute to a moderate increase in volumes, but
this is forecast to be offset by a slight decline in nickel prices in real
terms.
Prices
LME nickel prices declined for the second consecutive quarter in the
June quarter 2017 — by an estimated 8.5 per cent — although they are
estimated to be 6.5 per cent higher than a year earlier.
The outlook for nickel prices over the next two years has been revised
down, following government policy announcements in the Philippines
and Indonesia that are expected to add more supply to the global
market. However, demand is still expected to remain relatively strong in
China — the world’s largest market for nickel.
On balance, nickel prices are forecast to remain close to current levels
over the next two years, decreasing marginally in real terms. However,
with a high degree of uncertainty surrounding the impact of political
decisions in the Philippines and Indonesia on nickel production, the price
outlook remains particularly uncertain and volatility may be high.
World consumption
World nickel consumption increased by 9.6 per cent year-on-year in the
March quarter 2017. Growth in world nickel consumption continues to be
driven by China, which accounted for 65 per cent of world nickel
consumption growth in the year to the March quarter. World nickel
consumption is forecast to moderate, but remain strong in 2017, growing
by 5.9 per cent. Nickel consumption growth is forecast to slow over the
next two years, to 4.7 per cent and 4.2 per cent in 2018 and 2019,
respectively.
Figure 13.2: Nickel stocks and price
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
Jun–07 Jun–09 Jun–11 Jun–13 Jun–15 Jun–17
US
$ a
tonne
0
3
5
8
10
13
15
0
5,000
10,000
15,000
20,000
25,000
30,000
2008 2010 2012 2014 2016 2018
Weeks
2017 U
S$ a
tonne
Weeks of consumption (rhs) Price
Resources and Energy Quarterly June 2017 99
Figure 13.3: World mined nickel production, monthly
Source: International Nickel Study Group (2017)
Source: ABS (2017) Mineral and Petroleum Exploration 8412.0
Nickel consumption growth in recent years has been supported by rapid
growth in stainless steel production in China (69 per cent of the China’s
nickel use is in the manufacture of stainless steel). In 2016, China’s
stainless steel production grew by 16 per cent to 25 million tonnes. India
replaced Japan as the world’s second largest stainless steel producer in
2016, with production growing by 9 per cent to 3.3 million tonnes.
World production
World mined nickel production declined year-on-year for the sixth
consecutive quarter in the March quarter 2017 to 462,000 tonnes.
However, at 0.8 per cent, the pace of decline has slowed considerably
compared to recent quarters. Falling output in the Philippines (down
19,000 tonnes) and in Russia (down 15,000 tonnes), as well as
elsewhere, more than offset an increase in output of 36,000 tonnes in
Indonesia.
In the Philippines, Regina Lopez — who as acting Secretary of the
Department of Environment and Natural Resources ordered 23 mine
closures, cancelled 75 mining exploration contracts and banned new
open-pit mines — was removed from her position on 2 May 2017. It now
appears that mining suspensions may be lifted and supply will return to
the market.
Further adding to global nickel supplies is Indonesia, which is beginning
to export nickel ores again. In January 2017, Indonesia eased its ban on
nickel ore exports, subject to certain conditions. The ban was introduced
in January 2014, to provide support to ‘higher value-added’ refining
industries.
Australia’s exploration, production and exports
Exploration expenditure
Nickel and cobalt exploration expenditure increased by 187 per cent
year-on-year to $20 million in the March quarter 2017 — the highest
quarterly expenditure on nickel and cobalt exploration in over two years.
Despite the recent increases in exploration activity, with nickel prices
forecast to remain low, it is unlikely that exploration activity will increase
substantially over the next two years.
0
50
100
150
200
250
300
Mar–13 Mar–14 Mar–15 Mar–16 Mar–17
Thousand tonnes
Indonesia Philippines Australia Rest of world
0
10
20
30
40
50
60
70
80
90
100
Mar–07 Mar–09 Mar–11 Mar–13 Mar–15 Mar–17
A$ m
illio
n
Figure 13.4: Australia’s nickel and cobalt exploration expenditure,
quarterly
Resources and Energy Quarterly June 2017 100
Figure 13.6: Australia’s nickel export volumes and values
Source: Department of Industry, Innovation and Science (2017)
Australia’s nickel production forecast to increase in 2017–18
Australia’s refined and intermediate nickel production is estimated to
have declined sharply in 2016–17, but is forecast to increase in the next
two years. Intermediate and refined nickel production is estimated to
have declined by 20 per cent to 148,000 tonnes in 2016–17. The decline
in Australia’s refined nickel production in 2016–17 is largely attributable
to the closure of Queensland Nickel’s Yabulu refinery in early 2016.
Mined nickel production (metal content) declined by 4.5 per cent to
207,000 tonnes in 2016–17, but is forecast to increase in the next two
years. The decline in mined production is attributable to several mine
closures in Western Australia. In particular, Mincor’s Kambalda mine
and Panoramic Resources’ Savannah and Lanfranchi mines ceased
operations in late 2015 and early 2016.
Forecast growth in mined nickel production in the next two years is
largely attributed to the commissioning of Independence Group’s Nova
mine. However, with nickel prices expected to remain low, there may be
little incentive to recommence operations at mines currently placed as
being ‘ under care and maintenance’. As a result, Australia’s mined
nickel production is forecast to remain well below 2011–12 to 2014–15
levels.
Australia’s nickel production declined in the March quarter 2017
In the March quarter 2017, Australia’s refined nickel production declined
by 27 per cent year-on-year to 33,000 tonnes, while mined output is
estimated to have declined by 6.5 per cent to 50,000 tonnes.
Declining nickel production in the March quarter 2017 was largely
attributed to temporary disruptions. Glencore’s Murrin Murrin mine
reported a 33 per cent year-on-year drop in own-source nickel
production in the March quarter 2017, which it attributed to maintenance
stoppages. First Quantum reported a 21 per cent drop in output at
Ravensthorpe, which it attributed to equipment maintenance and
flooding.
Meanwhile, production at Western Areas NL nickel mines was little
changed in the March quarter. Nickel metal production at BHP Billiton’s
Nickel West facility declined by 2.4 per cent in the March quarter 2017,
although BHP expects production to increase by 10 per cent in 2016–17,
following ongoing debottlenecking activities.
Figure 13.5: Australia’s nickel production
0
10
20
30
40
50
60
70
80
90
Jun–09 Jun–11 Jun–13 Jun–15 Jun–17 Jun–19
Thousand tonnes
Mined Refined
0
50
100
150
200
250
300
0
2
4
6
8
10
12
2003–04 2006–07 2009–10 2012–13 2015–16 2018–19
Thousand tonnes
2016–17 A
$ b
illion
Volume (rhs) Value
Source: ABS (2017) International Trade in Goods and Services, 5368.0; Department of
Industry, Innovation and Science (2017)
Resources and Energy Quarterly June 2017 101
Figure 13.7: Australia’s nickel exports, quarterly
Notes: The March quarter 2017 estimate for refined is not shown because data is subject
to a 6 month lag
Source: ABS (2017) International Trade in Goods and Services, 5368.0;Department of
Industry, Innovation and Science (2017); International Trade Centre (2017) International
Trade Statistics 2001-2017
Independence Group’s Nova mine, which commenced production in the
December quarter 2016, continued to ramp up production in the March
quarter 2017. It is expected to have an annual productive capacity of
30,000 tonnes when fully operational.
Export values forecast to be relatively flat in the next two years
Australia’s nickel export earnings are estimated to have declined by 31
per cent to $2.1 billion in 2016–17, largely reflecting a decline in export
volumes. The decline in export volumes is attributed to declines in both
refinery and mine output.
Exports of nickel ore and concentrates have declined particularly sharply
in 2016–17. In the September quarter 2016, exports of nickel ores and
concentrates declined to 25,000 tonnes (metal content) — the lowest
level since March quarter 1995. While nickel ore and concentrate export
volumes have recovered somewhat in recent months, in the March
quarter 2017 they were still down 47 per cent year-on-year.
Nickel exports values are forecast to be relatively stable in 2017–18 and
2018–19. This reflects a declining nickel price (in real terms) offsetting
the impact of a forecast increase in export volumes.
0
10
20
30
40
50
60
70
Mar–07 Mar–09 Mar–11 Mar–13 Mar–15 Mar–17
Thousand tonnes
Ores and concentrates (metal content) Refined
Resources and Energy Quarterly June 2017 102
Annual percentage change
World Unit 2016 2017 f 2018 f 2019 f 2017 f 2018 f 2019 f
Production
– mine kt 1,990 2,150 2,273 2,369 8.0 5.7 4.2
– refined kt 1,984 2,135 2,257 2,352 7.6 5.7 4.2
Consumption kt 2,033 2,146 2,247 2,342 5.6 4.7 4.2
Stocks kt 555 533 533 533 -4.0 0.0 0.0
– weeks of consumption 14.2 12.9 12.3 11.8 -9.0 -4.5 -4.1
Price LME
– nominal US$/t 9,599 9,617 9,534 9,747 0.2 -0.9 2.2
Usc/lb 435 436 432 442 0.2 -0.9 2.2
– real US$/t 9,814 9,617 9,311 9,305 -2.0 -3.2 -0.1
USc/lb 445 436 422 422 -2.0 -3.2 -0.1
Notes: b In 2017 US dollars; c Nickel content of domestic mine production; d Includes metal content of ores and concentrates, intermediate products and nickel metal; e In 2016–17 Australian
dollars; f forecast; s estimate
Source: ABS (2017) International Trade in Goods and Services, Australia, Cat. No. 5368.0; Company reports; Department of Industry, Innovation and Science; International Nickel Study Group
(2017); LME (2017); World Bureau of Metal Statistics (2017).
Table 13.1 Nickel outlook
Annual percentage change
Australia Unit 2015–16 2016–17 s 2017–18 f 2018–19 f 2016–17 s 2017–18 f 2018–19 f
Production b
– mine kt 216 207 230 238 -4.5 11.1 3.6
– refined kt 142 112 117 116 -21.1 4.8 -1.0
– intermediate kt 44 36 40 38 -16.6 10.0 -4.5
Export volume kt 250 183 202 201 -27.0 10.4 -0.2
– nominal value A$m 2,909 2,052 2,109 2,155 -29.5 2.8 2.2
– real value A$m 2,960 2,052 2,064 2,064 -30.7 0.6 0.0
Resources and Energy Quarterly June 2017 104
Figure 14.1: Zinc monthly price
Figure 14.2: Annual zinc spot price and weeks of stocks
Source: LME (2017) zinc spot price
Source: LME (2017) zinc price; Department of Industry, Innovation and Science (2017)
Market summary
At present, fundamentals for zinc producers are among the strongest for
any base metal. Prices lifted sharply during 2016 — amidst strong global
demand and following a range of mine closures — and 2017 is shaping
up as a year of high prices. Influences include significant drawdowns in
inventories. Efforts are underway to increase extraction at a range of
mines and facilities around the world.
Australia faces some obstacles to capitalising on the current
opportunities in the global market. Export volumes in 2016–17 are
estimated to have fallen, due to some mine closures over the past two
years. However, price increases are expected to provide some windfall
to producers over the medium term. Exports of zinc (metallic content)
are forecast to lift to 1,008,000 tonnes in 2017–18 and to 1,169,000
tonnes in 2018–19. Real export earnings are forecast to decline slightly
in 2017–18 to $2,426 million, before recovering to $2,652 million in
2018–19.
Prices and stocks
Zinc prices have lifted strongly due to supply constraints and higher
demand
The LME zinc price averaged US$2,092 a tonne in 2016, with a sharp
spike late in the year. This spike largely reflected an acute production
shortage, which is expected to lead to a fall in global stocks during 2017.
The zinc price is estimated to average $US2,670 a tonne in 2017, as the
supply deficit increases. Further out, increased output from large
producers — including China — is expected to gradually bring the price
back down to $US2,525 a tonne in 2018 and $US2,475 a tonne in 2019.
There is little chance of any dramatic falls in zinc prices in coming years:
consumption growth in the automobile and infrastructure sectors is
generally expected to remain solid. One risk is that infrastructure
spending in the United States fails to occur, or fails to match the pace
currently anticipated by the market. Production at existing zinc mining
operations, particularly in China, is also expected to increase steadily
over time, constraining price gains over the longer term.
0
1
2
3
4
5
6
7
8
9
10
0
400
800
1,200
1,600
2,000
2,400
2,800
3,200
3,600
4,000
2002 2004 2006 2008 2010 2012 2014 2016 2018
Weeks o
f sto
cks
2017 $
US
a tonne
Stocks (RHS) Price (LHS)
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
2000 2002 2004 2006 2008 2010 2012 2014 2016
US
$ a
tonne
Resources and Energy Quarterly June 2017 105
Growth in refined production is likely to continue to be checked in the
short term by constrained mined supply; some smelters are operating
below capacity, due to the difficulty in obtaining feedstock. Refined
production is expected to edge down by 1.2 per cent to 13.8 million
tonnes in 2017, before rebounding to 14.7 million tonnes in 2018 and
15.3 million tonnes in 2019.
Australia’s exploration, production and exports
The prospect of higher prices sustains exploration expenditure
Australia’s expenditure on zinc, lead and silver exploration is trending
down, with quarterly expenditure falling from $13.4 million in the
December quarter 2016 to $7.7 million in the March quarter 2017.
However, strong zinc prices are attracting more interest among resource
companies, and there are signs that exploration spending may start to
recover in the coming few quarters.
Figure 14.3: Australia’s silver, lead & zinc exploration expenditure
Source: ABS (2017) Mineral and Petroleum Exploration, 8412.0; LME (2017) zinc price
World consumption
Car manufacturing and infrastructure spending remain crucial to
consumption growth
Refined zinc consumption was virtually unchanged in 2016, at just under
14 million tonnes. China — which currently consumes around half of the
world’s refined zinc — is expected to continue driving demand in the
outlook period , through ongoing public sector investment. There is also
a potential for higher zinc demand in the US, should the Trump
Administration succeed in steering its investment proposals through
Congress.
Global consumption is forecast to rise to 14.4 million tonnes in 2017, and
to 14.9 million tonnes in 2018. Higher consumption is expected to
contribute to higher prices and sharp falls in inventories in 2017, though
an increase in supply in late 2017 and throughout 2018 will limit
inventory gains in 2018.
World production
Mined production has good growth prospects
Zinc production dropped during 2016, due to mine closures — notably in
China, where 26 zinc mines were shuttered due to severe environmental
problems. Other mines around the world are also facing ore depletion,
creating tight supply conditions. However, in light of higher prices, it is
likely that a range of expansion plans (some of which were previously
curtailed) will now be revisited. Efforts to source additional zinc deposits
are underway in several countries.
Mined zinc production is estimated to rise by 6 per cent to 13.6 million
tonnes in 2017 — notably short of global consumption. Production is
subsequently forecast to rise to 14.5 million tonnes in 2018, and to 15.1
million tonnes in 2019, gradually closing the gap with demand. Stocks
will remain relatively tight in 2017, but are expected to start to rebuild
during 2018.
Refined production is still constrained by mined supply
Refined zinc production is being constrained by mine closures, and by
the suspension of smelter operations — many of which have had
difficulties in accessing concentrates.
0
600
1,200
1,800
2,400
3,000
0
5
10
15
20
25
Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16
US
$ a
tonne
A$ m
illio
n
Silver, lead, and zinc exploration expenditure Zinc price (rhs)
Resources and Energy Quarterly June 2017 106
Figure 14.4: Australia’s mine production by state
Figure 14.5: Australia’s zinc exports
Source: Company reports; Department of Industry, Innovation and Science (2017)
Source: ABS (2017) International Trade in Goods and Services, 5368.0; Department of
Industry, Innovation and Science (2017)
Australian output is rising despite issues with ore depletion
Australia’s mined zinc production is forecast to increase from 868,000
tonnes in 2015–16 to 916,000 tonnes in 2016–17.
Production is forecast to remain on an upward trend, rising to 1,049,000
tonnes in 2017–18 and to 1,054,000 tonnes in 2018–19. New mines
scheduled for completion — including MMG’s Dugald River, KBL’s
Sorby Hills and Independence Group’s Stockman operation — will help
to increase production, even as mines at Endeavour, Cannington,
Golden Grove and Jaguar reach the end of their operating life.
Australia’s refined production is set to increase marginally
Australia’s refined production is estimated to have increased slightly in
2016–17, to 465,000 tonnes, driven by a rise in output at the Port Pirie
smelter. Production is expected to lift gradually over the forecast period,
to 472,000 tonnes in 2017–18 and to 500,000 tonnes in 2018–19.
Export volumes are expected to rise gradually, after a large fall in 2016
Export conditions are strengthening, due to the projected increase in
zinc consumption in Emerging economies, and to the tightening global
availability of zinc concentrates. Despite these opportunities, Australia’s
export capacity will be constrained by the capacity of the remaining
mines: the closure of MMG’s 500,000 tonne Century mine in early 2016
significantly lowered the ceiling for potential exports.
A fall in export volumes to 1,026,000 tonnes (metallic content) is
estimated for 2016–17, due to earlier mine closures and production cuts.
Zinc export volumes are forecast to edge down to 1,008,000 tonnes in
2017–18, before rising to 1,169,000 tonnes in 2018–19 as new mines at
Dugald and Sorby Hills come online. Export earnings are forecast to
edge down from $2,521 million in 2016–17 to $2,426 million in 2017–18
(in real terms), before lifting to $2,652 million in 2018–19.
0
300
600
900
1,200
1,500
1,800
2001–02 2004–05 2007–08 2010–11 2013–14 2016–17
Thousand tonnes
QLD NT NSW WA TAS SA
0
1
2
3
4
5
6
7
0
300
600
900
1,200
1,500
1,800
2,100
2001–02 2004–05 2007–08 2010–11 2013–14 2016–17
2016-1
7 A
$ b
illion
Thousand tonnes
Volume Value (rhs)
Resources and Energy Quarterly June 2017 107
Annual percentage change
World Unit 2016 2017 f 2018 f 2019 f 2017 f 2018 f 2019 f
Production
– mine kt 12,838 13,610 14,521 15,099 6.0 6.7 4.0
– refined kt 14,004 13,829 14,727 15,333 -1.2 6.5 4.1
Consumption kt 13,914 14,379 14,892 15,432 3.3 3.6 3.6
Stocks kt 1,375 825 990 1,089 -40.0 20.0 10.0
– weeks of consumption 5 3 3 4 -41.9 15.9 6.1
Price LME
– nominal US$/t 2,092 2,670 2,525 2,475 27.6 -5.4 -2.0
USc/lb 95 121 115 112 27.6 -5.4 -2.0
– real US$/t 2,139 2,670 2,466 2,363 24.8 -7.6 -4.2
USc/lb 97 121 112 107 24.8 -7.6 -4.2
Notes: b In 2017 US dollars; c. Quantities refer to gross weight of all ores and concentrates; d In 2016-17 Australian dollars; f forecasts
Source: ABS (2017) International Trade in Goods and Services, Australia, Cat. No. 5368.0; Company reports; Department of Industry, Innovation and Science; International Lead
Zinc Study Group (2017); LME (2017); World Bureau of Metal Statistics (2017).
Table 14.1 Zinc outlook
Annual percentage change
Australia Unit 2015–16 2016–17 s 2017–18 f 2018–19 f 2016–17 s 2017–18 f 2018–19 f
Mine output kt 868 916 1,049 1,054 5.6 14.5 0.5
Refined output kt 459 465 472 500 1.2 1.6 6.0
Export volume
– ore and conc. c kt 2,222 1,537 1,611 1,906 -30.8 4.8 18.3
– refined kt 497 326 297 327 -34.4 -9.1 10.2
– total metallic content kt 1,507 1,026 1,008 1,169 -31.9 -1.8 15.9
Export value
– nominal A$m 2,628 2,521 2,478 2,768 -4.1 -1.7 11.7
– real d A$m 2,674 2,521 2,426 2,652 -5.7 -3.8 9.3
108
Resources and Energy Quarterly June 2017 109
Table 15.1: Types of lithium-ion batteries
Source: DIIS (2017)
The potential of battery technologyGlobal battery markets have entered a period of extremely rapid growth
in recent years, and the implications for Australia are potentially highly
significant. This is partly due to the potential of battery technology itself,
and its capacity to revolutionise clean energy, vehicles, and consumer
products. However, battery growth also creates unique opportunities for
producers of key commodities, notably lithium, graphite and cobalt.
Australia has major deposits of some of these, and is well placed to
capitalise on the opportunities that increased battery demand is creating.
Lithium-ion batteries
Lithium-ion (Li-ion) batteries were first created by an American inventor
— John Goodenough — in 1980. The Li-ion battery used the movement
of lithium ions between positive and negative electrodes in a way which
created more power from a smaller source than any battery before it.
By the early 1990s, Li-ion batteries were being commercially used in
electronics such as hand-held video cameras. More recently, Li-ion
batteries have become ubiquitous in personal devices and portable
electronics.
However, it now appears that we may have barely scratched the surface
of the Li-ion battery’s potential. It is now clear that lithium-ion transfer —
which stores and releases power — can occur in a larger variety of
cathode, anode, and electrolyte environments than had been previously
understood. Cathodes — an internal mechanism in which ion transfer
occurs — are undergoing profound changes. There are many potential
combinations of metals a cathode can employ, and new research is
unlocking more diverse forms. This is creating more specialised and
powerful batteries, unlocking opportunities for new technologies.
The number of potential formulations for ion transfer mean that there are
countless types of lithium ion batteries, some of which are shown in the
table opposite. Energy density refers to the amount of energy stored per
unit of volume, while power density refers to the ability to deliver power.
While there are competing battery types — such as Nickel-Metal
Hydride batteries — Li-ion batteries have particular capability in areas,
such as energy density, which places them at the forefront of solar
energy storage and electric vehicle manufacturing.
The Li-ion market was less than 6 GWh 10 years ago; in 2016, this
market is estimated to have surpassed 70 GWh. The number of
applications for these batteries is also expanding rapidly, and their
market share is rising. In recent years, growth has also been propelled
by the use of Li-ion batteries in automotive powertrains for electric
vehicles. Companies such as Tesla and Enphase are also developing
large-scale residential batteries and solar roofing projects. These
batteries can correct the misalignment inherent to rooftop solar, by
enabling power generated during the day to be stored and used at night,
when power usage peaks.
Roskill are currently forecasting average annual battery market growth
of 14 per cent per year out to 2025, when the market is expected to
reach 223 GWh.
Batteries classed as Li-ion primarily use three commodities — lithium,
graphite and cobalt. Li-ion battery demand has effectively pulled these
commodities into a second commodity boom, with demand rising, prices
spiking, and investment gathering steam.
End-use products Characteristics
Lithium
Cobalt
Oxide
Mobile phones,
laptops
High energy density but incurs longer
charge times and shelf life of 1–3
years.
Lithium
Manganese
Oxide
Power tools, medical
instruments
Fast recharge and high current
discharge, but 1/3 of LCO’s energy
density
Nickel
Cobalt
Electric vehicle
powertrains, energy
storage
High energy density and long life
span; safety and cost were a concern
but now resolved.
Nickel
Manganese
Cobalt
Electric vehicle
powertrains, power
tools
Can be tailored to high energy or
power density; most Japanese and
Korean producers sell NMC into the
electric vehicle market.
Lithium Iron
Phosphate
Electric vehicle
powertrains, e-bikes
LFP batteries offer a safe alternative.
Resources and Energy Quarterly June 2017 110
Table 15.2: Top five lithium mine reserves
Figure 15.1: World lithium production
Source: U.S. Geological Survey, Mineral Commodity Summaries, January 2017
Source: USGS (2016) Commodity Summaries
Critical battery commodities
Lithium is experiencing rapid growth
Lithium is the lightest, or least dense, elemental metal, being about half
as dense as water. It is primarily used for steel making, aluminium
smelting, ceramics and glass, greases, and polymer production.
Batteries presently account for a small proportion of total lithium
demand, but this is set to change significantly over coming years.
The use of lithium in batteries has increased over the past 10 years, as
demand for rechargeable batteries in portable devices, electric tools,
electric vehicles, and grid/energy storage has risen. Batteries accounted
for 35 per cent of all lithium use in 2015, up from 25 per cent in 2007.
The major end-uses for batteries in 2015 were electric vehicles (25 per
cent), phones (19 per cent) and portable PCs (16 per cent).
The criticality of lithium (a measure used by Geoscience Australia and
based on importance in use and availability or supply risk) is rated as
‘high’.
The strongest demand growth for lithium over the next 10 years is
expected to come from lithium-ion batteries for electric vehicles
(including e-bikes) and energy storage applications, with other non-
batteries applications growing more slowly. This trend will be supported
by the lower cost of batteries and by global efforts to reduce carbon
emissions and improve self-sufficiency.
Lithium is the first battery component to face a significant price and
investment surge. Prices for lithium carbonate and lithium hydroxide —
the two most common forms used in batteries — have generally grown
substantially since 2014, though exact details on prices are difficult to
track, due to the way lithium is traded.
There are two major lithium deposit types: brine deposits and mineral
deposits. Brine deposits occur when lakes, geothermal waters or
petroleum brines are enriched with lithium, and are mainly found in
South American counties — Chile, Argentina and Bolivia.
Mineral deposits (spodumene or pegmatite) generally contain a mix of
rare metals, including lithium. Extraction from hard rock deposits is
expensive, but has the capacity to respond to increased demand much
faster than brine operations. As a result, spodumene resources have
become the most likely source of new material in the short-term.
0 10 20 30 40 50
Brazil
Portugal
Zimbabwe
China
Argentina
Chile
Australia
Per cent
Reserves (kt) Production (2016) (kt)
Chile 7,500 12.0
China 3,200 2.0
Argentina 2,000 5.7
Australia 1,600 14.3
Portugal 60 0.2
Resources and Energy Quarterly June 2017 111
Table 15.3: Australian lithium projects
Source: DIIS (2017)
Australia is a key global source for lithium
Australia ranks fourth globally in its lithium deposits — behind Chile,
Argentina and China. Most of Australia’s economic demonstrated
resources ( EDR) of lithium occur within hard rock pegmatite deposits in
Western Australia, although other deposits have been found in the
Northern Territory, and further exploration is underway.
Australia is the largest producer of lithium, and significant resources of
spodumene mean Australia is well placed to remain a major producer
over the longer term. A host of companies in Western Australia are
already targeting near-term concentrate production for sale to Chinese
conversion facilities.
The Greenbushes deposit, which is the world’s largest and highest
grade spodumene deposit, contains around half of Australia’s lithium
EDR. It accounts for around 30 per of global lithium production. The
Mount Cattlin mine also began production in late 2016, while other
resources are being developed at Mount Marion and Pilgangoora, with
Pilgangoora now regarded as the world’s second largest deposit.
There is also a strong prospect of further operations being developed,
with positive definitive feasibility studies recently completed by Pilbara
Minerals Limited and Altura mining for mines in the Pilgangoora region.
The recent increase in the price of lithium has also increased interest in
operations where lithium has been produced as a by-product, such as
the Bald Hill tantalum mine. In March 2017, Talison Lithium Pty Ltd
announced that it had approved the expansion of Greenbushes to
double annual production. The expansion will supply a $400 million
lithium processing plant to be built at Kwinana, south of Perth.
Lithium exploration continues in other parts of Australia, including the
Bynoe pegmatite field near Darwin, where significant lithium-bearing
pegmatites have been identified. Australia has a range of salt lakes and
groundwater which also hold deposits of lithium, though the potential of
these sources has not yet been fully explored.
Australia is not alone in expanding its production. There are plans to
increase production in Chile from 48,000 tonnes of lithium to 63,000
tonnes by the end of 2018. Argentina is also planning to undertake big
expansions by 2022.
Project Name Location Stage Approximate Production
Greenbushes 250km S
of Perth
Operating ~400 thousand tonnes a
year (ktpa) of 6–7.5 per
cent spodumene
concentrate*
Mt Cattlin 2.2km N
of Ravensthorpe
Operating 137 ktpa of 6 per cent
spodumene concentrate
Mt Marion 40km SW of
Kalgoorlie
Committed 200 ktpa of 4–6 per cent of
spodumene concentrate
Pilgangoora
Tantalite
150km SE of
Port Headland
Feasibility 314 ktpa of 6 per cent
spodumene concentrate
Pilgangoora 120km SE of
Port Headland
Committed 219 ktpa of 6 per cent
spodumene concentrate
Resources and Energy Quarterly June 2017 112
Source: DIIS (2017)
Table 15.4: Top five graphite mine reservesDemand for graphite is growing, but not as fast as lithium
Graphite is a naturally occurring mineral that forms when carbon is
subjected to heat and pressure in the Earth's crust and in the upper
mantle.
Graphite is used for a range of products, including lubricants, foundry
operations, brake linings, and steelmaking, though use of graphite in
batteries is also on the rise. Advances in thermal technology and acid-
leaching techniques that enable the production of higher purity graphite
powders, are likely to lead to the development of new applications for
graphite in high-technology fields. Innovative refining techniques have
enabled the use of improved graphite in carbon-graphite composites,
electronics, foils, friction materials, and specialty lubricant applications.
Large-scale fuel-cell applications are also being developed, which could
consume as much graphite as all other uses combined.
The criticality of graphite is rated as ‘medium’ by GeoScience Australia.
While China currently dominates production of graphite, it is believed
that both Brazil and Turkey have greater reserves. The estimated world
total graphite reserve is 230 million tonnes.
New graphite deposits are being developed at various sites around the
world, and mines will soon begin production in Madagascar,
Mozambique, Namibia, and Tanzania. The global graphite market is
expected to lift from just under $14 billion in 2013 to almost $18 billion by
2020.
Australia has modest deposits of graphite
Australia’s reserves of graphite are comparatively modest, and there are
no operating graphite mining projects. However, a range of projects are
currently being progressed, with studies underway at sites in Oakdale
and Arno in South Australia, and McIntosh in Western Australia.
Table 15.5: Australian graphite projects
Source: U.S. Geological Survey, Mineral Commodity Summaries, January 2017
Reserves (kt) Production (2016) (kt)
Turkey 90,000 32
Brazil 72,000 80
China 55,000 780
India 8,000 170
Mexico 3,100 22
Project Name Location Stage Production
Mount
Dromedary
Queensland (near
Cloncurry)
Feasibility Up to 50,000 tpa
Uley South Australia
(near Port Lincoln)
Care and
Maintenance
Up to 64,000 tpa
Campoona South Australia (near
Cowell)
Prefeasibility 140,000 tpa
Oakdale South Australia
(near Port Lincoln)
Prefeasibility 94,500 tpa over
three years
Arno South Australia
(near Arno Bay)
Prefeasibility Unknown
Koppio-
Kookaburry
Gully
South Australia
(near Port Lincoln)
Reserves
Development
30-40,000 tpa
McIntosh Western Australia
(near Halls Creek)
Prefeasibility unknown
Resources and Energy Quarterly June 2017 113
Source: DIIS (2017)
Table 15.6: Top five cobalt mine reservesCobalt demand is rising tentatively
Cobalt is a chemical element generally found only in a chemically-
combined form. It can be smelted into a hard silvery metal, though it has
also been used to create pigments and various ores. Cobalt is also used
to create carbides for cutting, superalloys for aircraft engines, and
various other metallic and chemical applications.
Cobalt prices have been volatile for years, but appear to have settled
somewhat, with only tentative signs of supply issues emerging. Refined
cobalt supply is expected to fall below consumption, which is being
pushed up by demand from Li-ion batteries and aerospace industries.
Offsetting this slightly is a growing shift towards battery technologies
which require less cobalt. While this may lower cobalt demand growth in
batteries due to substitution, it is still likely that cobalt demand will grow
at an average annual rate of around 4 per cent over the next few years.
Prices are expected to lift slightly in 2017.
Criticality of cobalt is rated as ‘high’ by GeoScience Australia.
China is the world’s leading producer of refined cobalt, owning 70 per
cent of global refinery capacity. The bulk of cobalt is sourced from mines
in the Democratic Republic of Congo, though there is increasing concern
over the use of child labour (an estimated 40,000 miners are children)
and over environmental damage caused by the mines. Primary
production is also supplemented by increasing re-use of cobalt from
scrap and secondary sources.
Australian cobalt reserves are co-located with other commodities
Although Australia has significant cobalt reserves, there are no
dedicated cobalt mines in operation. Most cobalt is mined as a by-
product of copper, gold or nickel, and around 40 of Australia’s gold and
nickel operations are co-located with some form of cobalt deposit. These
mines produce varying quantities of cobalt as a secondary commodity.
Most deposits are located in Western Australia, though there are small
producers in Queensland, New South Wales and South Australia.
Australia accounted for 4 per cent of cobalt production in 2011.
With a deficit of 7000 tonnes of cobalt expected by 2020, and with some
suppliers facing environmental and human rights concerns, it is likely
that there will be emerging opportunities for new suppliers.
Table 15.7: Australian cobalt projects
Source: U.S. Geological Survey, Mineral Commodity Summaries, January 2017
Project Name Location Stage Outputs
Owendale New South
Wales
Feasibility
Started
Scandium, Platinum,
Nickel, Cobalt, Copper,
Palladium
Syerston New South
Wales
Feasibility
Started
Scandium, Nickel, Cobalt,
Platinum, Palladium
SCONI Queensland Feasibility
Started
Cobalt, Nickel, Scandium,
Iron Ore
White Range Queensland Feasibility
Complete
Copper, Cobalt, Gold,
Silver, Molybdenum,
Rhenium
Mount
Gunson
South Australia Feasibility Copper, Cobalt, Silver,
Gold, Iron Ore, U3O8
North Portia South Australia Feasibility
Started
Copper, Gold,
Molybdenum, Cobalt
Murrin Murrin Western
Australia
Expansion Nickel, Cobalt
Mulga Rock Western
Australia
Feasibility
Started
U3O8, Copper, Zinc,
Nickel, Cobalt, Scandium
Reserves (kt) Production (2016) (kt)
Congo
(Kinshasa)3,400,000 66,000
Australia 1,000,000 5,100
Philippines 290,000 3,500
Canada 270,000 7,300
Zambia 270,000 4,600
Resources and Energy Quarterly June 2017 114
The future of batteries
Batteries are an important enabler for new technology
Wind and rooftop solar accounted for 41 and 21 petajoules (respectively)
of Australia’s electricity generation in 2014–15. This amounts to a
relatively modest share of Australia’s total electricity use, which summed
to 908 petajoules over the year. However, solar and wind energy are
growing strongly, with solar growing by 60 per cent per year on average
over the past 10 years, while wind has grown at an average annual rate
of 24 per cent. Wind has reached one-third of total electricity generation
in South Australia.
As recent moves towards large battery facilities in South Australia
demonstrate, batteries have a significant role to play in supporting
emerging energy technologies. Upgrades to interconnectors will also
assist, by improving the management of variable generation. Batteries,
smart grids and interconnectors, have a mutually supportive function in
managing variability and ensuring smooth power provision over time.
Batteries are likely to also play an integral part in the potential
penetration of electric cars. As improvements to range take effect and
prices continue to fall, electric vehicles are forecast to grow in number,
from less than 15,000 in 2010 to almost 4 million (or 4 per cent of all
cars) by 2020.
The recent independent review into the National Electricity Market
(NEM) chaired by Alan Finkel, found that regulatory reform and
investment incentives will be important to help battery technology reach
its full potential. This potential is significant, with the report noting that
“Energy storage technologies can provide solutions to many of the
reliability and security challenges facing the NEM as it transitions to a
more variable, non-synchronous and distributed generation mix”.
Battery markets have some emerging issues, which could affect future
trends…
Although growth in demand is likely to pick up, there are emerging
challenges to the technology. Battery markets have become somewhat
skewed in recent years, with China becoming increasingly dominant
across a range of areas. China is now the biggest producer of flake
graphite, spherical graphite, lithium-ion anode material, lithium-ion
anodes and lithium-ion batteries. China is constructing several large
Li-ion factories, which are expected to push the country’s share of Li-ion
battery production to more than 60 per cent by 2020.
It is not clear yet how far Australia can progress beyond mining and into
other parts of the battery supply chain. Lithium concentrates produced
from mineral mines need to be further refined into higher purity lithium
products before they can be used in batteries. Most lithium concentrate
conversion plants are located in China, although two conversion plants
have been committed to in Australia. Should Australia attempt to expand
its role beyond extraction and further into production and manufacturing
of Li-ion batteries, there will be formidable issues around economies of
scale and labour cost.
Despite this, the undeveloped state of the supply chain may result in
opportunities emerging that are not yet apparent. Battery supply chains
are fragile and nascent at present, and improvements to the robustness
of these chains would do much to support long-term growth in the
battery industry.
… but technological change is a wildcard, and a potential game-changer
Technological change is bringing about significant disruptions and
improvements, despite ongoing issues in battery markets. Energy cell
costs have dropped by almost 75 per cent over the past six years, as a
result of cheaper materials, better manufacturing processes, higher
energy densities, better chemical formulations in battery cores, and
greater economies of scale.
Already, demand for batteries and associated technologies has changed
the game for producers of lithium, cobalt and graphite, turning them into
outliers at a time when other commodities are undergoing price falls and
declining investment. Time and technological change will show whether
the battery boom can drive wider change in global markets and energy
models. Investment is being drawn by the promise of electric vehicles,
and by the potential for community-generated solar power to displace
grid monopolies and fossil fuels. This investor interest is, in turn,
generating sizeable funds dedicated to further research and
development.
Commodity demand will be strong in the short term, but long-term
prospects for battery technology are still in motion. The potential
opportunities are vast, and investment and production decisions of today
could cast a long shadow into the future.
Trade summary charts and tables
Resources and Energy Quarterly June 2017 116
Figure 16.1: Contribution to GDP
Source: ABS (2017) International Trade in Goods and Services, 5368.0
Source: ABS (2017) International Trade in Goods and Services, 5368.0
Source: ABS (2017) International Trade in Goods and Services, 5368.0
Source: ABS(2016) Australian National Accounts, National Income, Expenditure &
Production, 5204.0
37
107
59
26 6 8
62
0
20
40
60
80
Agriculture,forestry and
fishing
Mining Manufacturing Building andconstruction
Services
Per
cent
2005–06 2015–16
GDP: $1229 b
GDP: $1617 b
Figure 16.4: Principal markets for Australia’s energy exports,
2016–17 dollars
Figure 16.2: Principal markets for Australia’s resources and energy
exports, 2016–17 dollars
2023
1216
710
84
53
1510 7 6 6
2 1
0
20
40
60
China Other OtherAsia
Japan SouthKorea
EU28 India Thailand
Per
cent
2005–06 2015–16
Exports: $65 b
Exports: $103 b
Figure 16.3: Principal markets for Australia’s resources exports,
2017–17 dollars
41
3
12 14 15
610
38
1612 10 10 9
4
0
20
40
60
Japan China SouthKorea
OtherAsia
Other India EU28
Per
cent
2005–06 2015–16
Exports: $52 b
Exports: $61 b
12
27
19
129 10
71
39
1913
10 86 4
1
0
20
40
60
China Japan Other OtherAsia
SouthKorea
EU28 India UnitedStates
Per
cent
2005–06 2015–16
Exports: $117 b
Exports: $164 b
Resources and Energy Quarterly June 2017 117
Figure 16.7: Proportion of goods and services exports by sector
Figure 16.8: Proportion of merchandise exports by sector
Source: ABS (2017) Balance of Payments and International Investment Position, 5302.0
Source: ABS (2017) Balance of Payments and International Investment Position, 5302.0
Source: ABS (2017) International Trade in Goods and Services, 5368.0
Source: ABS (2017) International Trade in Goods and Services, 5368.0
20
128 6 6 5 5
38
31
14
7 5 4 4 4
31
0
20
40
60
China Japan SouthKorea
UnitedStates
India HongKong
NewZealand
Other
Per
cent
2005–06 2015–16
Exports: $199 b
Exports: $247 b
Figure 16.5: Principal markets for Australia's total exports,
2016–17 dollars
14 1410
6 5 4 4
43
23
117 6 5 5 4
39
0
20
40
60
ChinaUnited States
JapanThailand
GermanySouth Korea
MalaysiaOther
Per
cent
2005–06 2015–16
Imports: $218 b
Imports: $268 b
Figure 16.6: Principal markets for Australia's total imports,
2016–17 dollars
12
58
1217
13
59
1217
13
54
12
2014
50
12
22
0
20
40
60
80
Rural Mineralresources
Othermerchandise
Services
Per
cent
2012–13 2013–14 2014–15 2015–16
14
70
1416
71
1415
67
1418
64
15
0
20
40
60
80
Rural Mineral resources Other merchandise
Per
cent
2012–13 2013–14 2014–15 2015–16
Resources and Energy Quarterly June 2017 118
Unit 2011–12 2012–13 2013–14 2014–15 2015–16
Japan $m 9,058 8,335 8,048 7,324 6,961
South Korea $m 3,236 2,915 2,894 2,753 2,566
China $m 3,080 3,120 3,625 2,823 1,763
Chinese Taipei $m 2,003 1,794 1,733 1,823 1,603
Malaysia $m 392 292 361 602 500
Thailand $m 188 255 302 281 320
Total $m 18,971 17,465 17,528 16,576 15,009
Source: ABS (2017) International Trade in Goods and Services, 5368.0
Source: ABS (2017) International Trade in Goods and Services, 5368.0
Table 16.1: Principal markets for Australia’s thermal coal exports, 2016–17 dollars
Table 16.2: Principal markets for Australia’s metallurgical coal exports, 2016–17 dollars
Unit 2011–12 2012–13 2013–14 2014–15 2015–16
India $m 7,122 4,944 5,047 5,174 4,693
Japan $m 9,723 6,419 5,771 4,760 4,437
China $m 3,950 4,963 6,145 4,924 3,943
South Korea $m 4,222 2,618 2,579 2,456 2,124
Chinese Taipei $m 2,025 1,244 1,222 1,176 989
Netherlands $m 1,397 1,048 1,053 859 931
Total $m 33,838 24,178 24,399 22,501 20,136
Resources and Energy Quarterly June 2017 119
Unit 2011–12 2012–13 2013–14 2014–15 2015–16
China $m 3,442 2,123 5 27 717
Thailand $m 1,075 879 1,714 1,301 706
Singapore $m 2,314 2,391 2,073 1,876 641
South Korea $m 1,291 1,667 668 1 457
Indonesia $m 577 324 324 34 360
United States $m 338 197 0 169 210
Total $m 13,185 11,258 11,662 8,929 5,540
Source: ABS (2017) International Trade in Goods and Services, 5368.0; International Trade Centre (2017) International Trade Statistics 2001–2017
Source: ABS (2017) International Trade in Goods and Services, 5368.0
Table 16.3: Principal markets for Australia’s crude oil and refinery feedstocks exports, 2016–17 dollars
Table 16.4: Principal markets for Australia’s LNG exports, 2016–17 dollars
Unit 2011–12 2012–13 2013–14 2014–15 2015–16
Japan $m 12,199 13,778 15,796 14,767 10,716
China $m 678 643 669 1,349 2,991
South Korea $m 292 678 460 981 1,708
Malaysia $m 0 0 0 115 191
Chinese Taipei $m 2 281 182 42 163
Total $m 13,171 15,379 17,107 17,428 16,866
Resources and Energy Quarterly June 2017 120
Unit 2011–12 2012–13 2013–14 2014–15 2015–16
China $m 47,908 45,196 59,836 43,432 39,454
Japan $m 11,987 9,285 10,140 6,907 4,764
South Korea $m 7,128 5,310 6,398 4,175 3,106
Chinese Taipei $m 1,978 1,613 1,794 1,338 1,039
Indonesia $m 0 0 116 220 184
India $m 0 51 43 112 6
Total $m 69,104 61,509 78,347 56,239 48,635
Source: ABS (2017) International Trade in Goods and Services, 5368.0
Source: ABS (2017) International Trade in Goods and Services, 5368.0
Table 16.5: Principal markets for Australia’s iron ore exports, 2016–17 dollars
Table 16.6: Principal markets for Australia’s aluminium exports, 2016–17 dollars
Unit 2011–12 2012–13 2013–14 2014–15 2015–16
Japan $m 645 730 715 792 1,135
South Korea $m 1,457 1,082 1,169 1,503 709
Chinese Taipei $m 410 491 466 504 303
Thailand $m 361 393 318 295 273
China $m 209 161 244 52 95
Indonesia $m 333 268 205 142 96
Total $m 4,185 3,531 3,650 3,944 3,298
Resources and Energy Quarterly June 2017 121
Unit 2011–12 2012–13 2013–14 2014–15 2015–16
China $m 2,751 3,272 4,132 3,761 3,650
Japan $m 1,638 1,740 1,704 2,052 1,453
Malaysia $m 773 729 641 543 628
India $m 1,600 1,196 992 829 522
South Korea $m 949 472 613 377 499
Philippines $m 21 152 299 265 225
Total $m 9,370 8,669 9,135 8,736 8,252
Source: ABS (2017) International Trade in Goods and Services, 5368.0
Source: ABS (2017) International Trade in Goods and Services, 5368.0
Table 16.7: Principal markets for Australia’s copper exports, 2016–17 dollars
Table 16.8: Principal markets for Australia’s gold exports, 2016–17 dollars
Unit 2011–12 2012–13 2013–14 2014–15 2015–16
China $m 4,698 6,450 8,482 7,173 8,918
United Kingdom $m 4,985 2,819 671 601 4,008
Hong Kong $m 180 119 158 196 2,569
Singapore $m 1,237 1,018 2,385 3,212 1,217
Thailand $m 1,771 1,370 466 925 258
Switzerland $m 37 308 362 15 88
Total $m 17,043 16,226 13,650 13,459 15,961
Resources and Energy Quarterly June 2017 122
Notes: fob free-on-board; kc calorific content; a At 62 per cent iron content, estimated netback from Western Australia to Qingdao China; b Australia's export unit values; c Premium hard coking
coal fob East Coast Australia; d Average of weekly restricted spot price published by The Ux Consulting Company; f forecast; s estimate
Source: ABS (2017) International Trade in Goods and Services, Australia, Cat. No. 5368.0; LME; London Bullion Market Association; The Ux Consulting Company; US Department of Energy;
Metal Bulletin; Japan Ministry of Economy, Trade and Industry; Department of Industry, Innovation and Science (2017).
Table 16.9: Spot prices, nominal quarterly average
Unit Jun–17 s Sep–17 f Dec–17 f Mar–18 f Jun–18 f Sep–18 f Dec–18 f Mar–19 f Jun–19 f
Alumina fob Australia US$/t 323 324 340 334 327 320 322 319 316
Aluminium LME cash US$/t 1,870 1,888 1,907 1,926 1,888 1,831 1,758 1,749 1,740
Copper LME cash US$/t 5,643 5,603 5,584 5,589 5,590 5,573 5,521 5,490 5,557
Gold LBMA PM US$/t 1,260 1,265 1,270 1,247 1,236 1,231 1,220 1,193 1,157
Iron ore fob Australia a US$/t 60 56 55 50 49 49 49 49 49
Nickel LME cash US$/t 9,400 9,372 9,425 9,477 9,553 9,553 9,553 9,747 9,747
Zinc LME cash US$/t 2,750 2,600 2,550 2,525 2,525 2,525 2,525 2,475 2,475
LNG fob b US$/MMBtu 7.5 7.1 7.4 7.6 7.7 7.7 7.9 7.9 8.0
Metallurgical coal c US$/t 187 140 137 136 135 135 128 120 119
Thermal coal fob
Newcastle 6000 kc US$/t 77 75 73 71 70 70 70 70 69
Crude oil (WTI) US$/bbl 50 52 54 55 55 56 58 59 61
Crude oil (Brent) US$/bbl 51 53 56 57 56 58 59 60 63
Crude oil (Japan
Customs Cleared) US$/bbl 51 53 56 57 56 58 59 60 63
Uranium d US$/t 21 23 24 24 24 25 27 28 28
Resources and Energy Quarterly June 2017 123
Notes: b In 2016–17 Australian dollars; f forecast; s estimate
Source: ABS (2017) International Trade in Goods and Services, Australia, Cat. No. 5368.0; Department of Industry, Innovation and Science (2017)
Table 16.10: Australia's export values, nominal quarterly
Unit Jun–17 s Sep–17 f Dec–17 f Mar–18 f Jun–18 f Sep–18 f Dec–18 f Mar–19 f Jun–19 f
Iron ore $m 16,849 16,304 16,151 13,233 13,785 14,289 14,349 13,827 14,674
Gold $m 4,008 4,059 4,079 4,332 4,387 4,423 4,441 4,677 4,589
Copper $m 1,972 2,099 1,998 1,977 1,988 2,098 1,977 2,013 2,060
Alumina $m 1,460 1,412 1,552 1,585 1,518 1,421 1,561 1,594 1,527
Aluminium $m 874 897 957 888 852 833 846 817 817
Zinc $m 639 539 612 673 654 592 698 766 713
Bauxite $m 236 232 236 236 236 236 241 271 271
Nickel $m 102 105 108 123 120 121 121 124 123
Other resources $m 4,032 3,922 4,120 3,692 4,039 3,899 4,111 3,693 4,051
Total resources $m 30,174 29,571 29,817 26,748 27,590 27,927 28,360 27,801 28,844
Metallurgical coal $m 9,535 8,932 8,387 7,585 7,232 7,368 7,063 6,779 6,442
Thermal coal $m 5,222 5,122 5,138 4,783 4,471 4,549 4,403 4,492 4,315
LNG $m 6,822 7,704 8,285 7,921 8,107 9,131 9,806 10,112 9,626
Crude oil $m 1,407 1,530 1,513 1,503 1,599 1,881 2,054 2,265 2,305
Uranium $m 245 251 255 244 244 264 267 258 258
Other energy $m 565 563 561 541 607 612 620 607 720
Total energy $m 23,795 24,102 24,138 22,577 22,259 23,805 24,212 24,513 23,667
Total resources and energy $m 53,969 53,673 53,955 49,326 49,850 51,732 52,573 52,314 52,511
Appendix
Resources and Energy Quarterly June 2017 125
Resources (non-energy) Energy
Definition
Resource commodities are non-energy minerals and
semi-manufactured products produced from non-
energy minerals
Energy commodities are minerals and petroleum
products that are typically used for power generation
Australian Harmonised Export Commodity
Classification (AHECC) chapters
25 (part); 26 (part); 28 (part); 31 (part); 71 (part); 73
(part); 74; 75; 76; 78; 79; 80; 8127 (part)
Commodities for which data is published, forecasts
are made and are analysed in detail in this report
Alumina; aluminium; bauxite, copper; gold; iron ore;
crude steel; nickel; zinc
Crude oil and petroleum products; LNG; metallurgical
coal; thermal coal; uranium
Commodities for which data is published and forecasts
are made. Lead; silver; tin; salt; diamonds; other resources Other energy
Notes: The AHECC chapter is the first two digits of the trade code. Groupings are made at the 8-digit level.
Source: Department of Industry, Innovation and Science (2017)
Table 17.1: Resource and energy commodities groupings and definitions
Methodology and key assumptions
Commodity classifications
In this report, exports for each commodity are defined by a selected set
of 8-digit Australian Harmonised Export Commodity Classification
(AHECC) codes. Where possible, the choice of AHECC codes is based
on alignment with international trade data, to ensure that direct
comparisons can be made. For example, groupings for various
commodities are aligned classifications used by the International Energy
Agency, World Steel Association, International Nickel Study Group,
International Lead and Zinc Study Group, International Copper Study
Group and World Bureau of Metal Statistics.
In this report, benchmark prices and Australian production and exports
are forecast for 21 commodities, as shown in Table 16.1 below. In
estimating a total for Australia’s resources and energy exports, the
remaining commodities, defined as ‘other resources’ and ‘other energy’,
are forecast as a group.
Real dollars
In this report, all value and price data (unless otherwise specified) is in
real 2016–17 Australian dollars or real 2017 US dollars. The conversion
from nominal to real dollars is based on the Australian and US consumer
price indices.
Prices in future years are based on the median of economic forecasters
at the time that this report was prepared. The source for this is
Bloomberg’s survey of economic forecasters.
Exchange rates
In this report, the exchange rate forecasts for the Australian/US dollar is
based on the median of economic forecasters at the time that this report
was prepared. The source for this is Bloomberg’s survey of economic
forecasters.