Australia Sees Higher Iron Ore Earnings on China-Fueled Boom

James Thornhill

21 Dec 2020, 07:06 PM IST

(Bloomberg) --

Australia upgraded its forecast for earnings from mining and energy exports in the 2021 financial year as booming iron ore prices boost the coffers of the world’s top producer.

Export sales are seen at A$279 billion ($212 billion) in the year to June 30, 2021, up about 9% on the previous forecast in September, the government’s Department of Industry, Science, Energy and Resources said in a quarterly update. That’s still down from a record A$291 billion in fiscal 2020.

Australian iron ore earnings are on track for an all-time high in fiscal 2021, with the department raising its forecast by 27% to A$123 billion on strong demand from China and ongoing supply disruptions in Brazil. Prices of the steelmaking raw material are expected to average $100 a ton over calendar 2021, up from the $85.50 projected in the September quarter.

“With global economic activity rebounding, the demand for resources and energy is steadily rising, running down inventories built up at the height of Covid-19 lockdowns,” the report said.

Soaring iron ore prices have helped to support Australia’s finances through the pandemic, while the government’s recent conservative assumption that they will decline toward $55 by the end of the third quarter next year sets it up for a potential budget windfall. In contrast, analysts have been marking up their forecasts, with Citigroup Inc. expecting the market to hold above $100 per ton through 2021.

The department lowered its forecast for coal exports, saying that reports of Chinese import restrictions were hurting producer sentiment. The government was focused on pursuing new export markets, Resource Minister Keith Pitt said in a statement, as the country seeks to reduce its reliance on demand from China amid heightened diplomatic tensions between Canberra and Beijing.

Other key points
Further official and unofficial Chinese government restrictions on imports of some Australian goods pose a downside risk to the forecasts, while the impact of current restrictive measures is uncertain. Prices forecasts for gold are downgraded, with expectations for the global roll-out of a coronavirus vaccine and subsequent economic rebound likely to put pressure on the safe-haven asset. Growth in mining investment is picking up, with industry spending of A$8.5 billion in the September quarter up 1.6% on the same period a year earlier.

Other key points

Further official and unofficial Chinese government restrictions on imports of some Australian goods pose a downside risk to the forecasts, while the impact of current restrictive measures is uncertain.
Prices forecasts for gold are downgraded, with expectations for the global roll-out of a coronavirus vaccine and subsequent economic rebound likely to put pressure on the safe-haven asset.
Growth in mining investment is picking up, with industry spending of A$8.5 billion in the September quarter up 1.6% on the same period a year earlier.

Key commodity forecasts
Iron ore seen averaging about $93/ton in 2020, peaking at $100/ton in 2021 before easing to about $76/ton in 2022. Forecasts refer to spot ore with 62% content, FOB Australia. Thermal coal prices have stabilized in the December quarter and are forecast to average $63 ton in 2021, picking up to $64 ton in 2022. Australian metallurgical coal prices are seen averaging $125/ton in 2020, down from $179/ton in 2019, after a sharp slow-down in Chinese imports saw them fall to four-year lows in the December quarter. Prices are seen recovering to $134/ton in 2021 and $145/ton by 2022, although a price recovery is highly dependent on Chinese government policy, the report said. Asian liquefied natural gas spot prices are forecast to rebound to $5.70 per million British thermal unit in 2021, from $4 per mmbtu in 2020, as expectations for a colder-than-normal northern hemisphere winter drive a strong revival in demand. A positive outlook for long-term Asian consumption is seen driving further gains to an average $6.40 per mmbtu in 2022. Gold forecast is pared to $1,695 per ounce in 2021 and $1,560 in 2022, from $1,776 per ounce in 2020. Lithium spodumene prices are forecast to rise by around 17% to $510 a ton by 2022, driven by ongoing growth in electric vehicles and government “green” stimulus packages to boost the post-pandemic economic recovery.

Key commodity forecasts

Iron ore seen averaging about $93/ton in 2020, peaking at $100/ton in 2021 before easing to about $76/ton in 2022. Forecasts refer to spot ore with 62% content, FOB Australia.
Thermal coal prices have stabilized in the December quarter and are forecast to average $63 ton in 2021, picking up to $64 ton in 2022.
Australian metallurgical coal prices are seen averaging $125/ton in 2020, down from $179/ton in 2019, after a sharp slow-down in Chinese imports saw them fall to four-year lows in the December quarter. Prices are seen recovering to $134/ton in 2021 and $145/ton by 2022, although a price recovery is highly dependent on Chinese government policy, the report said.
Asian liquefied natural gas spot prices are forecast to rebound to $5.70 per million British thermal unit in 2021, from $4 per mmbtu in 2020, as expectations for a colder-than-normal northern hemisphere winter drive a strong revival in demand. A positive outlook for long-term Asian consumption is seen driving further gains to an average $6.40 per mmbtu in 2022.
Gold forecast is pared to $1,695 per ounce in 2021 and $1,560 in 2022, from $1,776 per ounce in 2020.
Lithium spodumene prices are forecast to rise by around 17% to $510 a ton by 2022, driven by ongoing growth in electric vehicles and government “green” stimulus packages to boost the post-pandemic economic recovery.